-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCwgURpPtVofOmFOY3ImwrqMIrTFfySJj2hPZZUq0k8jw6LiYmUc+XM41O1cDs+q lgZPiExv4+S2LgDcIQ+A6g== 0000950153-00-000523.txt : 20000418 0000950153-00-000523.hdr.sgml : 20000418 ACCESSION NUMBER: 0000950153-00-000523 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMULA INC CENTRAL INDEX KEY: 0000885080 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 860320129 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12410 FILM NUMBER: 602567 BUSINESS ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6027528918 MAIL ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 10-K405 1 10-K405 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 1-12410
SIMULA, INC. (Exact name of Registrant as specified in its charter) ARIZONA 86-0320129 (State of Incorporation) (I.R.S. Employer Identification No.) 2700 NORTH CENTRAL AVENUE, SUITE 1000 PHOENIX, ARIZONA 85004 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 631-4005 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, par value $.01 per share New York Stock Exchange 8% Senior Subordinated Convertible Notes Due 2004 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive Proxy incorporated by reference in Part III of this Form 10-K. X As of March 28, 2000, the number of shares of Common Stock outstanding was 11,103,827 and the aggregate market value of the Common Stock (based on the closing price as quoted on the New York Stock Exchange on that date) held by non-affiliates of Registrant was $32,809,430. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy Statement to be filed with the Commission in connection with its Annual Meeting of Shareholders to be held June 22, 2000 are incorporated by reference in Part III of this report. 2 PART I ITEM 1. BUSINESS With the exception of historical information, the matters discussed in this report on Form 10-K may be estimates or constitute forward-looking statements that describe matters that involve risks and uncertainties which could cause the Company's actual results to differ materially from those discussed herein. See, "Management's Discussion and Analysis and Financial Condition and Results of Operations" - "Forward Looking Information" and "Risks and Uncertainties in the Business." THE COMPANY Simula, Inc. is an acknowledged world leader in providing crash resistant and energy absorption technologies that safeguard human lives. In its role as a safety technology company, Simula invents, manufactures, and markets advanced occupant seating and restraint systems installed in air, ground, and sea transport vehicles for the military, aircraft, and automotive industries. Simula, Inc. conducts its business through eight wholly-owned operating units. As used herein, the terms "Company" or "Simula" refer collectively to Simula, Inc. and its consolidated subsidiaries. SEGMENTS AND MARKETS OVERVIEW During 1999 Simula was a holding company for operating units in two business segments. The Commercial Transportation Products segment includes technology development, manufacturing and assembly operations for seating systems for airliners and products and safety systems for automobiles and trucks. The Company's Government and Defense segment includes technology development and manufacturing operations for military aircraft seating, armor, and crew safety systems sold principally to U.S. and foreign armed forces. Financial information about the Company and its segments is found in Item 6, 7, and 8 of this report. 1999 Recapitalization and Business Realignment During the period 1999 through early 2000, the Company completed major steps in recapitalizing the Company to provide additional working capital and focus the Company on its profitable core businesses. In August, 1999, the Company completed the sale of its rail seating operation which was reported as a discontinued operation. On December 31, 1999, the Company obtained a new credit facility with an asset based lender to replace its existing bank line and issued $20 million in secured senior notes in a transaction with a private investor. In December, 1999 the Company entered into an agreement for the sale of the assets of its operating unit engaged in the commercial airline seating business, for cash and the assumption of liabilities. This transaction was completed in January 2000. "See Management's Discussion and Analysis of Financial Results." Following this recapitalization the remaining operations of the Company are in the automotive safety and government and defense businesses. Although the recapitalization and operating results of its rail and airline seating units resulted in substantial charges on disposition and an operating loss in the fourth quarter, on a stand-alone basis, the automotive safety and government and defense businesses were profitable in each quarter of 1999. The Company believes that the recapitalization will allow Simula to continue to achieve these results through its focus on these profitable core businesses. Strategic Repositioning As part of the changes in 1999, the Company began implementing its strategic repositioning plan. The first element of this three part plan is to focus the Company on its core competencies, that is those businesses which historically have proven capable of operating on a profitable basis and financial performance. The Company has instituted economic value added performance metrics to better align its operating results with shareholder value. 1 3 The second element of the plan is the reduction of costs, particularly fixed expenses, to ensure positive cash flow. The last element of the repositioning plan is improving its technology and product development process for new projects and technologies. This process will systematically introduce new technologies and shorten technology development and product introduction timelines. CORE PRODUCTS AND TECHNOLOGIES Through its operating divisions and subsidiaries, Simula develops, manufactures, licenses, and sells products and technologies in six major categories. The products and technologies are typically developed into a number of different applications which are provided across a range of markets to different types of customers: - Inflatable Restraints - Simula has numerous patented inflatable restraint devices, embodying technologies and designs that are significantly different than the conventional airbag, which are used to protect occupants in automobiles and aircraft. The products and technologies are used in both military and commercial markets. - Seating Systems - The Company has expertise in crash resistant, energy absorbing, technologies used in protective seating systems for aircraft pilots and crews. The systems are used principally in military aircraft but also have commercial applications and customers. - Sensors - The Company has developed and patented a variety of sensors including one used to detect rollover incidents for land vehicles and another used to detect crash incidents in aircraft. The sensors trigger the deployment of safety devices, including inflatable restraints and airbags. The sensors have application in both commercial and military markets. - Armor - In connection with its military seating systems, Simula developed extensive technology and an array of armor products. Armor in numerous designs is used in military aircraft and land vehicles. Products are also sold and licensed in the civilian market, including for vehicles and "body armor" for law enforcement and similar personnel. - Polymer Products - Simula sells and licenses a family of proprietary polymer materials. The materials are transparent, high impact, and have high optical properties. The materials are suited for a variety of applications in both military and commercial markets, including ophthalmic lenses, protective eyewear, and armor systems. - Protective Equipment and Parachutes - The Company has patented designs for state-of-the-art parachutes with numerous competitive advantages. Parachutes are marketed for pilots in military branches around the world. Simula also has military customers for a related set of crew and pilot protective equipment including inflatable life vests utilizing the Company's inflatable restraint technology. COMMERCIAL TRANSPORTATION PRODUCTS SEGMENT In 1999, the Commercial Transportation Segment included five operating units in automotive safety, airline seating and airline soft goods, and polymer materials businesses. AUTOMOBILE SAFETY SYSTEMS Overview The Company designs and manufactures advanced occupant restraint systems for automobiles and trucks. In 1994, the Company made a strategic decision to enter the inflatable restraint market for automobiles utilizing its proprietary technology, the Inflatable Tubular Structure ("ITS(R)"). The Company completed its development of this technology and substantially completed the start-up of its manufacturing facilities in 1996. The ITS(R) began in product delivery production in April 1997. The Company's automotive safety product line has been one of its most 2 4 profitable businesses. In 1999, this business benefited significantly from increased production volumes, manufacturing efficiencies, cost downs and quality standards and certifications. Over the past several years, the demand for vehicle safety systems has increased dramatically due to consumer demand for increased safety and changes in government regulations mandating more effective safety components in vehicles. After frontal collisions, side-impact collisions are the second leading cause of injuries in vehicle crashes and account for approximately 25 percent of all injuries and 34 percent of all fatalities. A significant portion of side-impact injuries are to the head and neck. Rollover crashes are the third leading cause of injuries, and the second leading cause of fatalities in crashes. The ITS(R) was the first product designed specifically to protect vehicle occupants' heads and necks in side-impact collisions, and provides significant protection for vehicle occupants in the event of secondary collisions or rollovers. Since its introduction in BMW automobiles in 1997, the ITS(R) has proven to be an effective countermeasure against the grave effects of numerous categories of crashes. In several cases reported to the National Highway Traffic and Safety Administration (NHTSA), the ITS(R) has demonstrated its lifesaving qualities in protecting vehicle occupants from severe injury or death. In 1998, NHTSA amended a federal motor vehicle safety standard that governs the level of side-impact protection that vehicles are required to have. As a part of the new mandate, U.S. auto manufacturers may now replace some interior padding with a side-impact head protection system mounted on a vehicle's roof rail, such as the ITS(R). The new regulation underscores the increasing trend towards making side-impact safety a necessary component of every vehicle's safety system, and should create the impetus for automobile manufacturers to install these systems on an accelerated basis. The worldwide market for frontal and side-impact airbags in all vehicle positions (front and rear) is growing rapidly. In anticipation of such increased demand, the Company has developed several strategic partnerships with first-tier automotive suppliers resulting in 19 platform awards from 5 OEM's. Current Products and Technologies Inflatable Tubular Structure - The ITS(R) provides protection beyond that provided by conventional airbags currently utilized in automobiles. Unlike a conventional airbag, which must be backed by a structure such as a steering wheel, dashboard, or door, the ITS(R) is attached to and supported by the structure of the vehicle frame and door pillars. During a side-impact crash, a tube located above the door inflates and becomes shorter in length, which causes it to drop out of its molding and form a tight diagonal structure across the side window. It deploys as a tubular or curtain-like structure. As a result the ITS(R) provides protection despite the window being open or breaking upon impact. A conventional airbag would not have adequate support in these situations. Therefore, the ITS(R) is able to substantially reduce head rotation to the side and prevent contact with vehicle components. Additionally, the diagonal arrangement of the activated ITS(R) offers protection for occupants of different sizes and seating positions, and in different types of side-impact collisions, as well as in rollover, secondary impact, and ejection situations. The ITS(R) is not an "aggressive" airbag and thus does not pose some of the threats to smaller, or out of position vehicle occupants, as do conventional frontal airbags. It also has an extended inflation time, enabling the unit to offer protection in the event of secondary impacts or rollovers. The Company is currently manufacturing the ITS(R) for sale to BMW, a major European automobile manufacturer and recognized safety leader in the automotive industry. The Company has achieved adoptions for the ITS(R) for nineteen platforms for various automakers, that will be delivered for series production during upcoming model years through 2003. The Company is consistently engaged in ongoing sales and marketing efforts for ITS(R) adoption by automakers in their routine planning and production cycles. In 1998, the Company entered into license and manufacturing agreements with TRW Inc. and Delphi Automotive Systems, Inc., major first tier automotive component suppliers, for the marketing, development and production of ITS(R) for automotive platforms. The Company entered into a similar agreement with Indiana Mills & Manufacturing Inc. for the marketing, development and production of ITS(R) for truck platforms. The Company enters into such strategic alliances with first tier component suppliers to leverage off the size and industry strength 3 5 of such large manufacturers, and to benefit from their market access to OEMs. The Company believes it will continue to achieve product adoptions and increased volumes in the coming years. Customary industry price reductions for products are expected as volumes grow. The Company has been involved in a dispute regarding its 1995 distributor agreement with Autoliv, Inc. The Company has alleged that Autoliv violated fair competition laws and misappropriated some of its proprietary technology. The Company is also disputing Autoliv's position regarding second sourcing and the supply and manufacturing rights of the Company. See, "Litigation." See also, "Forward Looking Information" and "Trends and Uncertainties in the Business." Inflatable Tubular Torso Restraint ("ITTR") - The Company has developed various additional applications for its ITS(R)-related technology. To date, the most notable among them is the Inflatable Tubular Torso Restraint. The ITTR is a patented seat belt device that incorporates an inflatable tube into the torso portion of the belt. The ITTR has generated significant interest in the automotive market both for its innovative design and its potential to offer greatly enhanced occupant protection. In addition to the ITS(R) agreement described above, in 1998 the Company entered into a license and supply agreement with TRW for the marketing of the ITTR. TRW is one of the largest suppliers of restraint systems in the world and the ITTR is the only such system in its product portfolio. Numerous automakers are in discussions with TRW and this product is in an accelerated market position as compared to the ITS at a similar time in its development cycle. Rollover Sensors, Inflators, and Integrated Systems - The Company is completing development and testing of an innovative rollover sensor and airbag inflator device, both of which are subject to patents. Both of these technologies have been introduced to automakers and have the potential to become a major component of the Company's automobile safety product offerings. Additional products such as these that are complementary to currently manufactured inflatable restraint systems, may position the Company for more direct access as a supplier to automakers, and could increase market share for the Company as an integrated systems supplier. COMMERCIAL AIRCRAFT SYSTEMS Seating In 1993, the Company made a strategic decision to enter the commercial airliner seating market to bring its proprietary energy-absorbing technologies, established in connection with the Company's government and defense contracting business, to a new industry and take advantage of industry growth. To implement its decision, the Company acquired Airline Interiors, Inc. ("Airline Interiors"), which then was primarily involved with the refurbishment, re-upholstery, reconditioning, and reconfiguring of existing passenger seats. This acquisition provided certain FAA certifications, enhanced the Company's management team and customer base, and provided assembly capacity. Through Airline Interiors, the Company entered the commercial airliner new seating business in 1996. In 1997, 1998, and 1999 the Company made a substantial investment in ramping up this business. The Company's efforts resulted in Airline Interiors becoming the first successful entrant into the airline seating market in 25 years, achieving an estimated 6% worldwide market share by December 31, 1999. However, the Company never achieved profitable operations in this business and completed the sale of this operating unit to a major competitor in January 2000 under an agreement dated December 24, 1999. Airline Soft Goods The Company retains its operation which repairs, refurbishes, and retrofits existing commercial aircraft seats. Services include the supply of seat components, including upholstery, cushioning, and fire blocking. 4 6 ADVANCED POLYMER MATERIALS Simula has developed and tested a number of advanced polymers and polyurethanes possessing a wide variety of potential product applications, and has introduced these materials to a variety of customers in numerous markets. These patented and proprietary transparent plastic materials are high-strength, impact resistant, lightweight, dye compatible, and withstand extreme temperatures and chemical abrasion. Potential uses for such materials include transparent armor, laser protective devices, aircraft canopies, high performance windows for aircraft and automobiles, industrial and protective lenses and visors, and sun, sport, and ophthalmic lenses. The Company has obtained numerous research and product development contracts for these materials and is negotiating supply contracts with commercial customers in various markets. In 1999, the Company's newest operating unit actively pursued commercialization of the polymer technology and product manufacturing. In 1999 this unit successfully aligned with two strategic partners who licensed the material for their markets. The Company intends to leverage this license portfolio to move up the distribution channel and manufacture products for other applications. GOVERNMENT AND DEFENSE SEGMENT In 1999, the Government and Defense Segment included four operating units in seating systems, airbag, parachute, sensor, and protective devices businesses. Overview The Company manufactures a number of safety systems for military and other government customers. Simula is the world's leading supplier of energy-absorbing seating systems for military helicopters, and a manufacturer of advanced armor systems, inflatable restraints for aircraft, state of the art vacuum-packed parachutes, and related safety systems and products. Despite dynamic market and governmental policy changes in recent years, the market for government and defense contracts remains healthy but very competitive. There are two significant trends in the business. First, although there have been recent indications of increased military and defense funding, military procurement budgets have been shrinking in recent years. This has generally been the trend regardless of the number of trouble spots in the world or regardless of the political party in power. Accordingly, businesses have been competing for fewer defense dollars. The second significant trend is the consolidation in the defense industry. As a result of mergers and acquisitions in the last several years, there remain only six U.S. Government mega-contractors. This consolidation also has caused a consolidation and shake-up at the subcontractor and component supplier levels. Defense contractors are bringing increasingly significant pressure on margins and profitability of subcontractors while reducing the number of suppliers. The size of the military procurement market is difficult to predict beyond an analysis of currently funded programs, and is based on specific programs that are subject to needs assessments and funding issues by the Government. Current Products and Technologies Military Aircraft Seating Systems - The Company has been a major supplier of energy-absorbing seating systems for military helicopters and other military aircraft to various branches of the United States armed forces and their prime defense contractors, and foreign customers for over 20 years. This market is estimated to be $20 million annually. The military aircraft seating systems focus on reducing injury and increasing survivability in aircraft crashes. These crashworthy seating systems contain proprietary energy-absorbing devices that activate upon crash impact to absorb shock that otherwise would be absorbed by the seat occupant. Based on internal market surveys and data, the Company believes that it is the leading provider of energy-absorbing helicopter seats purchased by the United States and foreign armed forces. Aircraft for which the 5 7 Company has designed and manufactured seat assemblies for pilots, flight crews, troops, or SONAR operators include the AH-64A Apache attack helicopter; UH-60A Blackhawk transport and cargo helicopter; SH-60B Sea Hawk reconnaissance helicopter; SH-3 Sea King utility helicopter; CH-53 Sea Stallion transport and cargo helicopter; V-22 Osprey tilt-rotar aircraft; India's Hindustan Aeronautics, Ltd. ALH utility helicopter; and C-17 fixed wing utility aircraft. Aircraft manufacturers in the Company's military aircraft customer base include Boeing, Sikorsky Aircraft Corporation, Bell Helicopters Textron, Inc., and GKN Westland Helicopters Ltd. Armor Systems - As an outgrowth of its military aircraft seating systems the Company has developed an expertise in armor, which makes up a significant portion of both materials in, and costs of, such seating systems. In addition, the Company has developed a variety of other armor and composite materials for integration in its existing and proposed products and for sale as base materials to customers. Advanced composites materials with which the Company has expertise include fiber reinforcements of Kevlar, carbon, Spectra, S-glass, E-glass, and hybrid weaves matched with boron carbide, aluminum oxide, and other ceramics. The Company also has the capability to process thermoset resins including epoxies, polyesters, and vinyl esters. The Company's high-strength, lightweight armor systems have been incorporated into a variety of United States armed forces vehicles. The size of this total market is approximately $30 million annually, and the Company is a principal supplier of such lightweight armor systems in the United States. The Company develops and manufactures armor systems for seats as well as for structural and other components of military aircraft. Aircraft components incorporating armors developed or produced by the Company include V-22 Osprey crew seats; C-17 cockpit components; AH-64A Apache crew seats; Blackhawk crew seats and floor armor; CH-53 Sea Stallion crew seats; United States Navy landing craft air cushion pilot station armor; and high-mobility, multi-wheeled vehicles ("HMMWV") and transport vehicles ("HEMTT"). The Company's armor business, including new "body armor" products for personnel, has grown significantly and the Company anticipates it will devote continuing and additional efforts to increase its market share in both defense and civilian markets. Aircraft Inflatable Restraint Systems - The Company has completed development of various inflatable restraint systems for military and commercial aircraft. These systems include the Cockpit Airbag System ("CABS") for the protection of the flight crew in military aircraft. The Company developed CABS under a contract with the United States Army. CABS incorporates airbags in a configuration surrounding the aviator that inflate following sensor detection of crash impact from a variety of directions. CABS then deflates following deployment and thereby protects against mishaps caused by accidental deployment during the normal operations of the aircraft. Development and qualification was completed in 1998. The Company has been awarded contracts and will commence production of CABS in 2000. Parachutes - Under contract with the United States Navy, the Company has applied its technologies and overall knowledge of materials and structures to develop a parachute that solves numerous functional problems attendant to traditional military parachutes. The Company's parachute, unlike many parachutes traditionally used by the military is small, lightweight, unisex, capable of being worn during flight, and vacuum-packed so that it maintains a long-term shelf life without repacking. The Company is the sole source on this Navy contract. Information About Government Contracting As a contractor and subcontractor to the United States government, the Company is subject to various laws and regulations that are more restrictive than those applicable to non-government contractors, and many of the Company's products are governed by rules favoring the government's contractual position. As a consequence, such contracts may be subject to protest or challenge by unsuccessful bidders or to termination, reduction, or modification in the event of changes in government requirements, reductions of federal spending, or other factors. The Company's government-related revenue has resulted almost exclusively from firm, fixed-price contracts. Fixed-price contracts involve certain inherent risks to the Company, including under estimating costs, problems with new technologies, and economic and other changes that may occur over the contract period. The accuracy and appropriateness of certain costs and expenses used to substantiate direct and indirect costs of the Company for the United States government under both cost-plus and fixed-price contracts are subject to extensive regulation and 6 8 audit by the Defense Contract Audit Agency ("DCAA") arm of the United States Department of Defense. The DCAA has the right to challenge the Company's cost estimates or allocations with respect to such contract. TECHNOLOGY DEVELOPMENT The Company supports a large design, development, research, testing, and engineering capability for the modification and improvement of existing products and invention and development of new technologies and products. The Company regards it research and development capabilities as a superior competitive strength and intends to continue to devote substantial resources to support this part of its business. The Company employs an interdisciplinary team of biomedical experts, crash safety analysts, chemists, and physicists. The Company has a state of the art testing facility for a variety of functions including ballistics and crash dynamics. The Company's research and testing facilities support intracompany projects and also generate revenue from external services contracting. The Company retains proprietary rights in the products and services it develops, including those initially financed under government contracts. As an integral component of its strategy, the Company seeks to transfer all of its technology to product applications. The Company's costs for research and development in 1999, 1998, and 1997 were approximately $12.0 million, $13.5 million, and $11.8 million, respectively. These amounts include government-funded, other customer-funded, and Company-funded research and development contracts. Since much of its research and development generates proprietary technology, the Company has patent protection on certain products. The Company's ability to compete effectively depends, in part, on its ability to maintain the proprietary nature of its technologies. The Company also relies on unpatented proprietary information and know-how, typically protecting such information as trade secrets. The Company holds 23 patents. In addition, the Company has 16 patent applications pending for various technologies. United States patents protect inventions for a period of 20 years after the application is first filed. The Company does not presently own or maintain any trademarks that are material to its business. PRODUCTION AND MANUFACTURING The Company's production and manufacturing consists principally of the machining, bending and welding of metals, molding of composite materials, processing, sewing, upholstery, component fabrication, and final assembly. After assembly, products are functionally tested on a sample basis as required by applicable contracts. The Company's manufacturing capability features computer-integrated manufacturing programs which, among other things, schedule and track production, update inventories, and issue work orders to the manufacturing floor. All products manufactured must meet rigorous standards and specifications for workmanship, process, raw materials, procedures, and testing, and in some cases regulatory requirements. Customers, and in some cases the United States government as the end user, perform periodic quality audits of the manufacturing process. Certain customers, including the United States government, periodically send representatives to the Company's facilities to monitor quality assurance. A total of four of the Company's operating units are ISO certified. The Company conducts manufacturing operations principally in metro-Phoenix, Arizona. The Company also has manufacturing operations in Atlanta, Georgia and Asheville, North Carolina. Simula Automotive Safety Devices, Inc. operates two new state of the art manufacturing facilities including a high volume, just in time provider, in the United Kingdom to support customers located in Europe. See, "Item 2. Properties." DISTRIBUTION, MARKETING AND SALES Most of the Company's products are distributed as a component supplier to OEMs or subcontractor to prime contractors. The Company does not directly serve mass consumer markets and supplies directly from manufacturing facilities, which does not involve significant inventory, warehousing, or shipping methodologies. 7 9 Depending upon the product, the Company typically employs one of four methods for marketing: (i) direct sales, (ii) technical teams, typically comprised of a combination of sales personnel and engineers, which it utilizes in the marketing of automotive safety devices, (iii) strategic alliances with first tier component suppliers, which it utilizes in the marketing to OEMs, and (iv) responses to formal request for proposals in bidding for government contracts. Approximately 55% of the Company's total revenue in 1999 resulted from products sold internationally. The Company anticipates that its international sales will continue to grow. The initial customer of the ITS(R) has been Autoliv, a European first tier automobile supplier that is supplying to BMW. The Company believes that there are opportunities for additional sales of the ITS(R) in Europe and Asia. Military procurement has traditionally had a large international base. Countries in which the Company is actively marketing include Germany, Canada, Italy, the United Kingdom, Ireland, Japan, India, Korea, Australia, and Canada. Sales of the Company's products to all branches of the United States armed forces represented approximately 10%, 12%, and 13% of the Company's revenue in 1999, 1998, and 1997, respectively. Sales to Continental Airlines accounted for approximately 12% of the Company's revenue in 1997. The Company's historical and acquired businesses have relied to a great extent on relatively few major customers, although the mix of major customers has varied from year to year depending on the status of then existing contracts. The Company believes that historical customers, such as the United States Army and other branches of the United States armed forces and their prime contractors, to which the Company has supplied products for over 20 years, will continue to represent major customers although the percentage of the Company's revenue attributable to them can be expected to decrease as a result of the Company's expanding commercial operations. The loss of or reduction in sales to a major customer may have a more adverse effect on the Company's operations or financial condition than if the Company's revenue was less concentrated by that customer. COMPETITION The worldwide automobile airbag market is currently dominated by five large suppliers, all of which are producing airbag systems in commercial quantities. The market served by the Company's inflatable restraint systems is intensely competitive. The Company has entered into strategic alliances with a number of the largest suppliers of conventional automotive airbags, including TRW, Delphi Automotive Systems, and others, to market and produce the Company's products. Numerous suppliers compete for government defense contracts as prime contractors or subcontractors. Competition relates primarily to technical know-how, cost, and marketing efforts. The competition for government contracts relates primarily to the award of contracts for the development of proposed products rather than for the supply of products that have been developed under contracts. The Company's principal competitors in the crashworthy military seating market are Martin Baker (England) and Israel Aircraft Industries, Ltd. Most of the Company's competitors have greater marketing capabilities and financial resources than the Company. The Company's competitive strategy is to be a technology innovator and strategic partner with larger industry leaders. The Company's present or future products could be rendered obsolete by technological advances by one or more of its competitors or by future entrants into its markets. RAW MATERIALS AND SUPPLIES The Company purchases raw materials, components, devices, and subassemblies from a wide variety of sources. Principal raw materials used by the Company include plastics, urethanes, ceramics, Kevlar, aluminum, steel, airbag materials, hoses, woven materials, upholstery and fabric products and foam. Components include aluminum subassemblies, restraints and related hardware, harnesses, and gas generators for inflatable restraint products. The Company generally purchases supplies and components pursuant to individual or blanket purchase orders. Blanket purchase orders usually provide for the purchase of a large amount of items at fixed prices for delivery and payment on specific dates. Most of the raw materials used by the Company are widely available. 8 10 BACKLOG The Company's backlog at December 31, 1999 and 1998 was approximately $74 million and $121 million, respectively. The backlog at December 31, 1999 and 1998 consisted of approximately $56 million and $62 million, respectively, under defense contracts and approximately $18 million and $59 million, respectively, with commercial customers. The backlog includes contracts for major current products as well as for supplies and replacement components. In the case of government contracts, backlog consists of aggregate contract values for firm product orders, exclusive of the portion previously included in operating revenue utilizing the percentage completion accounting method. All orders included in the backlog are believed to be firm and are expected to be filled over the next 5 years. In the case of automotive safety devices the backlog only includes anticipated production for the next 6 months. EMPLOYEES The Company had approximately 1,300 full-time employees at its locations in Arizona, California, Illinois, New York, North Carolina, Georgia, and Ashington, England through most of 1999, that was reduced to approximately 700 employees after the 1999-2000 business restructuring. The Company believes that its continued success depends on its ability to attract and retain highly qualified personnel. The Company's employees are not unionized. ENVIRONMENTAL REGULATIONS The Company's operations are subject to a variety of federal, state, and local environmental regulations, including laws regulating air and water quality and hazardous materials and regulations implementing those laws. The Company's principal environmental focus is the handling and disposal of paints, solvents, and related materials in connection with product finishes, welding, and composite fabrication. The Company contracts with qualified waste disposal companies for services. The Company regards its business as being subject to customary environmental regulations, but does not believe it faces unique or special problems. The cost to the Company of complying with environmental regulations is not significant. ITEM 2. PROPERTIES The Company's corporate headquarters are located in Phoenix, Arizona. The Company conducts operations in three U.S. states and in the United Kingdom. Manufacturing facilities are located in Tempe, Arizona; Atlanta, Georgia; Asheville, North Carolina; and Ashington, England. In addition, the Company maintains extensive research and development labs and testing facilities in Phoenix. The Company leases most of its facilities. ITEM 3. LEGAL PROCEEDINGS In February 1998, the Company filed a complaint in United States District Court for the District of Arizona against Autoliv, Inc., seeking injunctive relief from alleged anti-competitive acts and practices by Autoliv. The complaint alleges numerous unlawful actions taken by Autoliv in connection with a license from the Company to market and distribute the Company's ITS(R). The legal action asserts that Autoliv has suppressed technology and is unlawfully interfering with the Company's rights to market the ITS(R) and related products to other first tier automotive safety equipment suppliers and to automobile manufacturers. In 1998, the District Court stayed the proceedings and ruled that the dispute between the parties was a contractual one and was subject to arbitration pursuant to a contract provision. On November 3, 1998, the Company filed a separate complaint against Autoliv in the United States District Court for the District of Delaware seeking injunctive relief and damages for patent infringement. The Company's complaint alleges that Autoliv developed, offered, and sold a side impact head protection device in the United States that infringes the patent that Simula owns for the ITS(R). The Company 9 11 became aware of the potential infringement in early October 1998 as Autoliv introduced this device into production automobiles being offered for the first time in the United States. In late 1999, the Delaware court similarly stayed the proceedings pending arbitration. In 1999, the Company commenced an international arbitration proceeding under the rules of the International Chamber of Commerce. The arbitration includes the same legal claims as made in the U.S. litigation. The forum is in Zurich, Switzerland. This arbitration is pending. In addition, the Company is involved in other litigation in the ordinary course of business from time to time. The Company presently is not a party to any threatened or pending litigation, the negative outcome of which would be material to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of fiscal 1999 to a vote of security holders, through the solicitation of proxies, or otherwise. 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange under the symbol "SMU." The following table sets forth the high and low closing prices of the Company's Common Stock for each calendar quarter of the year indicated.
High Low ---- --- 1998: First Quarter........................................................ $17.13 $13.50 Second Quarter....................................................... 18.19 13.50 Third Quarter........................................................ 17.00 8.25 Fourth Quarter....................................................... 8.75 5.25 1999: First Quarter........................................................ $ 8.75 $ 4.94 Second Quarter....................................................... 7.81 4.44 Third Quarter........................................................ 7.44 4.81 Fourth Quarter....................................................... 7.38 4.50 2000: First Quarter........................................................ $ 6.69 $ 3.50
The number of holders of the Common Stock of the Company, including beneficial holders of shares held in street name, as of the close of business on March 29, 2000, is estimated to be greater than 2,000. On March 28, 2000, the closing price of the Common Stock was $4.19 Per share. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The Selected Consolidated Financial Data presented below has been derived from historical audited consolidated financial statements of the Company for each of the five years in the period ended December 31, 1999. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the Notes thereto. 11 13
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) Income statement data: Revenue $ 131,392 $ 100,645 $ 67,362 $ 42,125 $ 35,153 Cost of revenue 102,984 85,724 51,781 36,769 20,029 --------- --------- --------- --------- --------- Gross margin 28,408 14,921 15,581 5,356 15,124 Administrative expenses 26,729 20,421 18,698 15,861 11,847 Restructuring charge 18,327 --------- --------- --------- --------- --------- Operating (loss) income (16,648) (5,500) (3,117) (10,505) 3,277 Interest expense (7,246) (5,099) (4,173) (1,700) (983) Other 1,298 --------- --------- --------- --------- --------- (Loss) income before taxes (23,894) (10,599) (5,992) (12,205) 2,294 Income tax benefit (expense) 8,444 3,786 2,390 5,010 (158) --------- --------- --------- --------- --------- (Loss) earnings before discontinued operations, cumulative effect of change in accounting principle and extraordinary loss (1) (2) (15,450) (6,813) (3,602) (7,195) 2,136 (Loss) earnings from discontinued operations (1) (2,320) 62 277 521 Loss on disposal (1) (7,238) (18,576) Cumulative effect of change in accounting principle (2) (3,132) Extraordinary loss on early retirement of debt (151) --------- --------- --------- --------- --------- Net (loss) earnings $ (22,839) $ (27,709) $ (3,540) $ (10,050) $ 2,657 Dividends on preferred stock 280 --------- --------- --------- --------- --------- Net (loss) earnings available for common shareholders $ (23,119) $ (27,709) $ (3,540) $ (10,050) $ 2,657 ========= ========= ========= ========= ========= PER SHARE AMOUNTS (3): Earnings per common share - basic: (Loss) earnings before discontinued operations, accounting change and extraordinary item $ (1.54) $ (0.69) $ (0.39) $ (0.79) $ 0.26 (Loss) earnings from discontinued operations -- (0.23) 0.01 0.03 0.07 Loss on disposal (0.71) (1.88) -- -- -- Cumulative effect of accounting change -- -- -- (0.36) Extraordinary loss on early retirement of debt (0.01) -- -- -- -- ========= ========= ========= ========= ========= Net (loss) earnings $ (2.26) $ (2.80) $ (0.38) $ (1.12) $ 0.33 ========= ========= ========= ========= ========= Earnings per common share - assuming dilution: (Loss) earnings before discontinued operations, accounting change and extraordinary item $ (1.54) $ (0.69) $ (0.39) $ (0.79) $ 0.25 (Loss) earnings from discontinued operations -- (0.23) 0.01 0.03 0.06 Loss on disposal (0.71) (1.88) -- -- -- Cumulative effect of accounting change -- -- -- (0.36) -- Extraordinary loss on early retirement of debt (0.01) -- -- -- -- ========= ========= ========= ========= ========= Net (loss) earnings $ (2.26) $ (2.80) $ (0.38) $ (1.12) $ 0.31 ========= ========= ========= ========= ========= PRO FORMA AMOUNTS (2) (3): Net earnings $ 194 ========= Earnings per share - basic $ 0.02 ========= Earnings per share - assuming dilution $ 0.02 ========= OTHER DATA: Research and development Funded by the Company $ 4,350 $ 3,383 $ 4,394 $ 1,916 $ 1,419 Costs incurred on funded contracts $ 7,642 $ 10,066 $ 7,383 $ 8,588 $ 4,722
12 14
AS OF DECEMBER 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) Balance sheet data: Assets: Current assets $ 52,907 $ 62,424 $ 73,409 $ 44,280 $ 29,211 Property and equipment - net 13,947 21,495 18,666 17,462 10,476 Deferred income taxes 33,438 20,550 4,477 1,782 812 Deferred costs 4,898 2,628 3,137 929 6,206 Intangibles - net 1,788 3,452 3,701 3,832 3,758 Other 362 430 498 731 1,800 Net assets of discontinued operations 13,471 13,926 13,166 -------- -------- -------- -------- -------- Total assets $107,340 $110,979 $117,359 $ 82,942 $ 65,429 ======== ======== ======== ======== ======== Liabilities: Current liabilities $ 47,895 $ 45,176 $ 24,754 $ 21,075 $ 8,142 Long-term debt 53,820 47,233 46,963 24,680 11,200 -------- -------- -------- -------- -------- Total liabilities 101,715 92,409 71,717 45,755 19,342 Redeemable convertible preferred stock 2,250 -------- Shareholders' equity (4) 3,375 18,570 45,642 37,187 46,087 -------- -------- -------- -------- -------- Total liabilities and shareholders' equity $107,340 $110,979 $117,359 $ 82,942 $ 65,429 ======== ======== ======== ======== ========
(1) In 1998, the Company's board of directors adopted a plan to dispose of its rail and mass transit operations. Accordingly, the operating results of these operations including a provision for estimated loss upon disposition, have been segregated from continuing operations and are reported as discontinued operations. In August 1999, the Company completed the sale of the rail and mass transit operations resulting in an additional loss upon disposal. (2) During 1996, the Company adopted a new method of accounting for pre-contract costs. These costs were previously deferred and recovered over the revenue streams from the Company's customers. Effective January 1, 1996, these costs have been expensed. Pro forma amounts for 1995 assume the new accounting method is applied retroactively. (3) In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 128, Earnings Per Share. SFAS No. 128 requires the dual presentation of basic and diluted earnings per share on the face of the income statement and the disclosure of the reconciliation between the numerators and denominators of basic and diluted earnings per share calculations. Earnings per share amounts for the years ended December 31, 1999, 1998 and 1997 are calculated using only weighted average outstanding shares of 10,230,720, 9,880,283 and 9,288,416, respectively. Options to purchase common stock and shares to be issued upon conversion of the Preferred Stock, 8% Notes and 10% Notes totaling 6,119,039 for the year ended December 31, 1999 were not used for computing diluted earnings per share because the result would be anti-dilutive. Options to purchase common stock and shares to be issued upon conversion of the 8% Notes and 10% Notes totaling 4,546,065 and 3,896,966 for the years ended December 31, 1998 and 1997, respectively were not used for computing diluted earnings per share because the result would be anti-dilutive. Basic earnings per share for the year ended December 31, 1995 is calculated using weighted average shares outstanding of 8,175,300 and earnings per share assuming dilution is calculated including 401,517 additional shares for stock options and warrants. (4) The Company has not paid any cash dividends on common stock since its April 1992 initial public offering. 13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL The following discussion and analysis provides information that the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition for the three years ended December 31, 1999 compared to the same periods of the prior years. This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. Except for the historical information contained herein, this discussion contains forward looking statements (including statements in the future tense and statements using the terms "believe," "anticipate," "except," "intend," or similar terms) which are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially from those discussed herein. See Forward Looking Information and Risks of the Business. OVERVIEW The Company designs and manufactures occupant safety systems and devices engineered to safeguard human life in a wide range of air, ground, and sea transportation vehicles. Utilizing its substantial proprietary technology in energy-absorbing seating, inflatable restraints, and composite materials, the Company focuses on reducing injury and increasing survivability in vehicle and aircraft crashes. Since its founding in 1975, the Company's historic core business has been as a government and defense contractor. Additionally, commencing with acquisitions and commercial product developments since 1993, the Company became supplier of seating systems for rail and other mass transit vehicles and a new entrant in the manufacture of new commercial airliner seating. Utilizing its proprietary safety technology, the Company has introduced crashworthy systems for a variety of vehicles and aircraft and various inflatable restraint systems for automobiles including the Inflatable Tubular Structure ("ITS"). In 1993 and 1994, the Company pursued an acquisition strategy designed to enable the Company to exploit its energy absorption technology within the commercial airline seating business. In 1993, it acquired an airline passenger seat reupholstery and refurbishing business, which provided certain FAA certifications and seat assembly capacity. In 1994, it acquired two competing companies in the rail and mass transit seating business, which provided large scale manufacturing capacity synergistic with the airline seating business. In 1996, the Company the commercial airline seating market. In 1998, the Company decided to discontinue its rail and mass transit businesses when its commercial airline seating business no longer needed the manufacturing capacity supplied by these operations, and it sold these businesses in 1999. In late 1999 the Company decided to sell its commercial airline seating business in 1999 to concentrate on more profitable businesses. In 1994, the Company made a strategic decision to enter the inflatable restraint market for automobiles utilizing its proprietary ITS technology. Through 1996, the Company completed its development of this technology and start-up of its manufacturing facilities. In 1997, the Company began manufacturing the ITS for sale to BMW, a major European automobile manufacturer. Simula's revenue has historically been derived from three sources: sales of Company manufactured products; contract research and development for third parties; and technology sales and royalties. A substantial portion of its current revenue from the government and defense segment is accounted for under the percentage of completion method of accounting. Under this method, revenue is recorded as production progresses so that revenue less costs incurred to date yields the percentage of gross margin estimated for each contract. Overall gross margin percentages can increase or decrease based upon changes in estimated gross margin percentages over the lives of individual contracts. Note 18 of the Notes to Consolidated Financial Statements provides a break down of revenues for each significant segment of the Company. 14 16 Note 16 of the Notes to Consolidated Financial Statements provides the revenues and related costs associated with contract research and development for third parties. The Company is a holding company for wholly owned subsidiaries which operate in two primary business segments. The Commercial Transportation Products segment includes operations which primarily manufacture seating systems for domestic and foreign passenger airlines and operations producing inflatable restraints and related safety technologies for automobiles. The Government and Defense segment includes operations that design and manufacture crash resistant seats and components, energy absorbing devices, and ballistic armor, principally in connection with United States armed forces procurement. The remaining segment, entitled Other, represents general corporate operations.
RESULTS OF CONTINUING OPERATIONS YEAR ENDED DECEMBER 31, ------------------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in Thousands) REVENUE: Commercial Transportation Products $ 83,603 $ 64,749 $ 36,997 Government and Defense 47,588 35,877 30,348 Other 201 19 17 --------- --------- --------- Total $ 131,392 $ 100,645 $ 67,362 ========= ========= ========= GROSS MARGIN: Commercial Transportation Products $ 14,775 $ 4,141 $ 4,781 Government and Defense 13,432 10,760 10,792 Other 201 20 8 --------- --------- --------- Total $ 28,408 $ 14,921 $ 15,581 ========= ========= ========= ADMINISTRATIVE EXPENSES: Commercial Transportation Products $ 14,744 $ 9,842 $ 7,207 Government and Defense 10,360 9,225 10,096 Other 1,625 1,354 1,395 --------- --------- --------- Total $ 26,729 $ 20,421 $ 18,698 ========= ========= ========= OPERATING (LOSS)/INCOME: Commercial Transportation Products $ (18,296) $ (5,701) $ (2,427) Government and Defense 3,072 1,536 696 Other (1,424) (1,335) (1,386) --------- --------- --------- Total $ (16,648) $ (5,500) $ (3,117) ========= ========= =========
LIQUIDITY AND CAPITAL RESOURCES The Company defines liquidity as the ability to access cash to meet operating and capital needs. The Company's primary source of cash in the 1999 period was from financing activities. The Company's ability to fund working capital requirements and debt service during the next year will be dependent upon improved cash flow from the remaining operating units. Following the 1999 restructuring, the remaining operations have a recent history of profitability and positive cash flow. The Company has significantly reduced it's working capital needs and believes that existing availability under its RLC is adequate to fund its operations. The Company is continuing to work with it's investment banker to address the September 1999 maturity of the $5.0 million Term Note. The alternatives currently being considered include repayment of the note through a combination of cash flow and availability under the RLC, refinance the note through an expansion of a banking facility or a new note, work with the note holder to extend the note beyond the current due date until one of the above is accomplished or strategic asset sales or technology licensing. Company believes it has sufficient manufacturing capacity, at December 31, 1999, to meet its anticipated future delivery requirements. The Company may, however, seek to obtain additional capital should demand for it's products exceed current capacity. The raising of capital in public markets will be primarily dependent upon prevailing market conditions and the demand for the Company's products and technologies. During the fourth quarter of 1999, the Company undertook a restructuring plan which included the refinancing of its then outstanding bank debt and certain term notes payable which were maturing. On December 30, 1999 the company executed a Financing Agreement (the "Financing Agreement") with an asset based lender which provided a $17.0 million Revolving Line of Credit (the "RLC") and a $5.0 million term note. The proceeds from this financing, together with the proceeds from the Senior Secured Notes discussed below, were used to retire the then existing Senior Credit Agreement and two term notes payable to a bank and to retire $4.3 million of the Company's Senior Subordinated Convertible Notes. The Company's availability under the RLC is dependent upon the relative balances of accounts receivable and inventories and each of their relative advance percentages. The RLC accrues interest payable monthly at the Chase Manhattan prime rate or LIBOR plus 2.4% based upon the rate selected by the Company. The RLC matures on December 30, 2003 and renews automatically unless terminated by either party with 60 days notice prior to each anniversary date of the agreement. If the Financing Agreement is terminated at any other time, an early termination fee based upon the outstanding principal under the revolving line of credit of 1 1/2% during the first year and 3/4% after the first anniversary and before the second anniversary shall be assessed. At December 31, 1999, the Company had available and outstanding borrowings of $17.0 million and $12.8 million, respectively. The Financing Agreement contains covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Financing Agreement is secured by the assets of the Company. The $5.0 million term note was retired on February 2, 2000 with proceeds received from the sale of the Company's airline new seat manufacturing operation. At December 31, 1999 the Company was in compliance with all covenants relating to the Financing Agreement. On December 30, 1999, the Company executed an agreement with an accredited investor for two Senior Secured Notes in the amounts of $5,000,000 (the "Term Note A") and $15,000,000 (the "Term Note B") (together the "Term Notes") and a warrant to purchase 850,000 shares of common stock at $5.00 per share. The warrant is immediately exercisable and expires in 7 years. The Term Note A matures on September 30, 2000, accrues interest payable monthly at 15% and provides for an additional monthly bridge fee of $25,000. The Term Note A may be redeemed with a 30 day notice at any time without penalty. The Term Note B matures on June 30, 2003 and provides for cash interest to be paid monthly at 12.25% and interest which is to be capitalized into the note principal balance at 3% per month. The Term Note B may be redeemed with a 30 day notice at certain specified redemption prices plus accrued interest payable to the redemption date. The Term Notes contain covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Term Notes are secured by the assets of the Company. At December 31, 1999 the Company was in compliance with all covenants relating to the Term Notes. In October and December 1999 the Company entered into two separate $1 million Promissory Notes with it's Chairman of the Board of Directors. The notes bear interest at 12%, and each note provides for a placement fee of $20,000 to be paid upon maturity or any accelerated repayment of the note. One note was paid with the proceeds from the Term Notes and the remaining note matures on December 31, 2003. Voluntary prepayment of the note is prohibited, however, the note is subject to mandatory prepayment at the option of the holder if all of the following conditions have been satisfied: (1) The $5,000,000 Senior Secured Note to the asset based lender has been paid in full; (2) The $5,000,000 Senior Secured Note to the outside accredited investor has been paid in full; (3) after giving effect to the mandatory prepayment to be made hereunder, the availability under the Company's revolving line of credit is not less the $2,000,000. On March 29, 1999, the Company completed a private placement to an accredited investor of $7.5 million of the Company's Series A Convertible Preferred Stock (the "Series A"). The Series A bears a coupon rate of 6% per annum payable quarterly in cash, or in stock that will be valued at 90% of fair market value at the time of payment. The Series A may be converted into shares of the Company's Common Stock at any time at 101% of the average closing price of any 15 out of the 30 consecutive trading days preceding conversion, up to a specified maximum conversion price (the "Conversion Cap"). The Conversion Cap was initially set at $8.60 per share and was subject to an interim adjustment. On August 1, 1999 the Conversion Cap was adjusted to $8.04. In addition, the Conversion Cap is subject to an annual adjustment to the lesser of the then existing Conversion Cap or 130% of the average of the closing bid price for 20 consecutive trading days immediately proceeding the annual adjustment anniversary date. Conversion of the Series A is limited to 10% of the initial amount per month, accumulating monthly up to a maximum of 30% of the accumulated convertible amount in any month. The Company may require the conversion of the Series A if the market price of the Company's Common Stock exceeds the Conversion Cap by at least 50% for at least 20 consecutive trading days, subject to the same conversion limitations imposed upon the Series A holders. The Series A is subject to mandatory redemption at May 1, 2004. The proceeds from this offering were used to pay down the then existing revolving line of credit. During 1999 $5.25 million of the Series A plus accrued dividends of $.175 million were exchanged for 1,077,074 shares of the Company's common stock. In 1999, dividends totaling $279,536 were paid on the Series A. At December 31, 1999 $2.25 million of the series A remain outstanding. The Company's liquidity is greatly impacted by the nature of the billing provisions under its contracts. Generally, in the early period of contracts, cash expenditures and accrued profits are greater than allowed billings while contract completion results in billing previously unbilled costs and profits. With regard to operating units retained by the company, contract receivables, net of contract advances, increased $3.8 million for the year ended December 31, 1999 principally due to the timing of work performed and the billing provisions of the related contracts. In addition, trade receivables in the Commercial Transportation Products segment decreased $1.1 million for the year ended December 31, 1999 due to the timely collection of amounts due. Operating activities required the use of $9.0 million of cash during the year ended December 31, 1999, compared to the use of $19.2 million of cash during the same period in 1998. Cash used for operating activities in 1999 was primarily used to fund operating losses and working capital needs of businesses disposed of during the year. With regard to operating units retained by the company, cash was utilized to fund contract and trade receivables noted above, total inventories remained constant and accounts payable and accrued liabilities increased by $11.0 million 15 17 Investing activities required the use of $3.7 million of cash during the year ended December 31, 1999. Approximately $2.8 million was used for capital improvements and the amounts were equally split between the two operating segments. In the second quarter of 1999, the Company sold real property in a sale and leaseback transaction. The sale generated net cash proceeds of $2.4 million that was used to pay down the revolving line of credit at that time. Financing activities provided $17.0 million of cash during the year ended December 31, 1999 with $7.5 million coming from placement of the Series A Preferred Stock offset partially by $0.1 million in dividends paid thereon, $0.5 million for issuance of common shares, and the balance, $9.1 million coming from net borrowing after reduction of the revolving line of credit by $4.1 million. 1999 Compared to 1998 Revenue for the year ended December 31, 1999 increased 31% to $131.4 million from $100.6 million for the comparable period in 1998. Commercial Transportation Products revenue increased 29% or $18.8 million principally as a result of increased deliveries of ITS, new commercial airliner seats and growth in the airliner seat refurbishing business. Government and Defense revenue increased 33% or $11.7 million due to a general increase in ongoing government contracts. For the year ended December 31, 1999, gross margin increased 90% to $28.4 million from $14.9 million for the comparable period in 1998. As a percent of sales, gross margins increased to 22% from 15%. Gross margins for Commercial Transportation Products increased 257% or $10.6 million and the gross margin percentage increased to 18% in 1999 from 6% in 1998. Profitability of the new airliner seating business was seriously impacted in the last six months of 1999 by the Company's efforts to sell the 16 18 assets of the business. Despite the disruption, gross margin associated with the production of new airliner seating improved from a negative margin of ($9.9) million in 1998 to a negative margin of ($2.9) million in 1999. This change resulted from improved manufacturing efficiency, fewer pre-contract and start-up costs and fewer new seat design certifications as the business concentrated on producing to its existing backlog and repeat orders. Gross margins associated with the Company's airliner seat refurbishing business improved primarily due to a more experienced work force and efficiencies from higher volumes. The increased gross margin as a percentage of sales associated with airline seating products was partially offset by a 2% decline in the gross margin as a percentage of sales associated with the Company's automotive products. Although gross margin as a percentage of sales declined in automotive products as the result of customer sales volume discounts gross margin dollars increased $1.4 million in 1999 due to the realization of increased customer sales. Gross margin percentages for Government and Defense decreased to 28% in 1999 from 30% for the comparable 1998 period. The decrease in gross margin percentages at Government and Defense was primarily due to less external funding on research and development contracts. Administrative expenses for the year ended December 31, 1999 increased 34% to $27.3 million from $20.4 million for the comparable period in 1998. As a percent of sales, administrative expenses increased to 21% from 20% for the comparable 1998 period. Commercial Transportation Products administrative expenses increased $4.9 million or 50% and as a percentage of sales increased to 18% from 15% primarily due to sales growth in these businesses. Government and Defense administrative expenses increased $1.1 million or 12% and is related to the 29% increase in internally funded research and development expenses to $4.4 million from $3.4 million in the comparable 1998 period. Government and Defense administrative expenses as a percentage of sales decreased to 22% from 26% and is attributable to increased sales. Corporate operating expenses increased $880,000 or 65% as compared to the comparable period in 1998. This increase is primarily related to approximately $600,000 in non-cash compensation recognized in relation to certain stock option exercises and an increase in legal expenses principally related to the Company's claim of patent infringement on its ITS(R). In December 1999, management of the Company, with the approval of the board of directors, committed itself to a plan of restructuring and recorded a charge to income of $18.3 million. The plan of restructuring included a refinancing of its outstanding bank line of credit and certain term notes and the divestiture of the Company's new airline seat manufacturing operation. The Company completed the sale of substantially all the assets of the airline seat manufacturing operation in January 2000 and closed the operating facility at that time terminating approximately 300 management and production employees. Total proceeds from the sale was approximately $21.9 million and included the assumption of liabilities of approximately $11.6 million and resulted in a loss on sale of $10.3 million. The remaining restructuring charge is comprised of severance costs of $1.6 million, $2.5 million related to the abandonment of leased operating facilities and equipment, $2.3 million related to the write down to net realizable value for inventory and fixed assets and $1.6 million in recognition of additional liabilities related primarily to outstanding purchase order commitments which were non-cancelable. The Company expects cash flow savings as a result of not having to fund continued operating losses to offset the cash required in implementing the restructuring plan within the first year. The airline seat manufacturing operation had sales of $41.9 million, $32.0 million and $ 27.7 million and operating losses of $25.4 million, $14.5 million and $3.3 million during the years ended 1999, 1998 and 1997, respectively. Interest expense for the year ended December 31, 1999 increased 42% to $7.2 million from $5.1 million for the comparable period in 1998. This increase was due to increased borrowings on the Company's bank credit facilities and monthly penalty charges assessed by the Company's previous lender. These increased borrowings were made to fund increased working capital needs and acquire fixed assets necessary to support the growth in revenues. The effective income tax rate for the year ended December 31, 1999 and 1998 approximated 35%. 1998 Compared to 1997 Revenue for the year ended December 31, 1998 increased 49% to $100.6 million from $67.4 million for the comparable period in 1997. Commercial Transportation Products revenue increased 75% or $27.8 million principally as a result of increased deliveries of ITS and new commercial airliner seats. Government and Defense revenue increased 18% or $5.5 million due to a general increase in ongoing government contracts. 17 19 For the year ended December 31, 1998, gross margin decreased 4% to $14.9 million from $15.6 million for the comparable period in 1997. As a percent of sales, gross margins decreased to 15% from 23%. Gross margins for Commercial Transportation Products decreased 13% or $0.6 million and the gross margin percentage decreased to 6% from 13% in 1997. The decrease in gross margins resulted primarily from increased pre-contract and start-up costs and production cost inefficiencies from the penetration of additional sales channels in the airliner seating market, a $2.0 million write down of certain inventory used in the refurbishment of airliner seating which is no longer a significant component of operations, and costs incurred related to the move of the airliner seating operations to a new facility which provided for additional capacity. The effect of the above results in the airliner seat business was partially offset by increased gross margins on the ITS as a result of increased volume and a complete year of operations. Gross margin percentages of Government and Defense decreased to 30% from 36%. The decrease in gross margin percentages at Government and Defense was primarily due to higher funding on research and development contracts. Administrative expenses for the year ended December 31, 1998 increased 9% to $20.4 million from $18.7 million for the comparable period in 1997. As a percent of sales, administrative expenses decreased to 20% from 28% due to the increase in revenue noted above. Commercial Transportation Products administrative expenses increased $2.6 million or 37% and as a percentage of sales decreased to 15% from 19% primarily due to increased sales volume. Government and Defense administrative expenses decreased $0.9 million or 9% and is related to the 23% decrease to $3.4 million from $4.4 million of internally funded research and development expenses. The decreased research and development expenses were partially attributable to an increase in certain Government and Defense production contracts, which resulted in greater production resources being assigned to contract programs. As a percent of sales, Government and Defense administrative expenses decreased to 26% from 33% attributable to increased sales and lower expense levels as noted above. Interest expense for the year ended December 31, 1998 increased 22% to $5.1 million from $4.2 million for the comparable period in 1997. These increases were due to increased borrowings on the Company's bank credit facilities. These borrowings were made to fund operations and acquire fixed assets necessary to support the growth in revenues for 1998 and subsequent years. The effective income tax rate for the year ended December 31, 1998 approximated 35% as compared to 40% for the comparable period in 1997. The decrease in the Company's 1998 effective tax rate is attributable to the expiration of certain foreign tax credits and the recognition of a valuation allowance for certain state net operation loss and foreign tax credit carry forwards. DISCONTINUED OPERATIONS In 1998, the Company's board of directors adopted a plan to dispose of its rail and mass transit seating operations. Accordingly, the operating results of these rail and mass transit operations, including a provision for estimated loss upon disposition, have been segregated from continuing operations and are reported as discontinued operations. The Company executed the sale of its rail and mass transit seating operation on August 31, 1999 under an Asset Purchase and Sale Agreement dated June 30, 1999, as amended and restated August 31, 1999 and subsequently on October 21. 1999, a Note Refinancing Agreement was executed. A former director of the Company wholly owned the acquiring company. Consideration received consisted of $100,000 cash, assumptions of approximately $4,700,000 in liabilities and a promissory note for $9,996,000 which matured on October 15, 1999. On October 21, 1999, the parties entered into the Note Refinancing Agreement which refinanced the note as two separate notes in the amount of $1,996,000 and $8,118,008 and reflects the capitalization of $118,008 of interest related to the original note into principal outstanding. The notes each carry an interest rate of 8 1/2% and mature on October 15, 2004. Interest is required to be paid quarterly beginning April 2000 on the $1,996,000 promissory note and semi-annually beginning April 2001 on the $8,118,008 promissory note. The negotiated interest rate on the notes did not properly reflect the risk and current market conditions. Therefore, the company has computed the net present value of the notes using a discount rate of 23%, which is the Company's determination of the market rate of interest and market value of the notes. Management believes this more properly reflects the risk related to the notes due to their subordinated nature. This resulted in a net present value discount of $6,750,000 assuming principal only payment at the end of the term. 18 20 The notes are secured by the underlying assets and a Pledge and Proxy Security Agreement in the stock of the underlying company and stock of Beacon Industries, Inc. which is owned under common control of the acquirer and subordinated to short-term capital financing received subsequent to its disposal. Although a legal transfer of assets occurred at August 31, 1999, the sale could not be recognized as a divestiture for accounting purposes at that time because there was an absence of a significant investment in the business by the buyer. As a result of losses by the rail and mass transit seating operation since the sale date and the uncertainty of the ultimate recovery of the entire principal and interest on a timely basis in accordance with the terms of the contract, a valuation allowance for the remaining balance has been recorded. This uncertainty is based on the operating losses sustained by the business subsequent to disposal, its inability to acquire adequate long-term financing for repayment of the notes under the terms of the contract, or obtain additional equity investment. While the contract between the parties remains fully enforceable, and the Company believes some recovery may occur, the company can not accurately predict the precise timing and amount of the collection of principal and interest, accordingly the carrying value of the notes is zero. Any future payments of principal received will be accounted for under the cost recovery method of accounting as a component of discontinued operations. Under the Asset Purchase and Sale Agreement the Company has retained the liability for claims incurred through August 31, 1999 under its self funded health insurance plan and has agreed to indemnify the acquiring company for any customary warranty and litigation claims. An additional charge upon the final disposal of the rail and mass transit discontinued operation of $7,238,109, net of tax benefit of $3,898,000, was recorded in the year ended December 31, 1999. Revenues for the rail and mass transit operations were $8,247,294 for the eight months ended August 31, 1999, and $15,781,983 and $23,059,525 for the years ended 1998 and 1997, respectively. Interest expense has been allocated to discontinued operations based on the ratio of the discontinued operations' net assets to consolidated net assets. General corporate administrative expenses are not allocated to discontinued operations. 19 21 INFLATION The Company does not believe that it is significantly impacted by inflation. RESEARCH AND DEVELOPMENT The Company's research and development occurs primarily under fixed-price, government-funded contracts as well as Company-sponsored efforts. The revenue received under government-funded contracts is recorded under the percentage completion method of accounting, and the costs of independent research and development efforts are expensed as incurred. Historically, research and development efforts have fluctuated based upon available government-funded contracts. The Company anticipates that future fluctuations may also occur and that absent government funded research, the Company will directly fund research and development efforts to expand its inflatable restraint, commercial airliner seating, and other technologies. As noted in Note 16 to the Consolidated Financial Statements, the Company's costs for research and development to advance its technologies were $12.0 million in 1999, of which $4.4 million was internally funded. SEASONALITY The Company does not believe that it is currently significantly impacted by seasonal factors. FORWARD LOOKING INFORMATION AND FINANCIAL TARGETS The Company believes that in 1999 and early 2000 it successfully addressed the manufacturing inefficiencies, operating losses, cash flow and liquidity problems that Simula experienced in recent years. The Company believes that it has significant competitive advantages based on its current and developing technologies and products, and that Simula will continue to benefit from its worldwide recognition as a premier safety technology company. Management believes the Company is positioned for consistent revenue and earnings growth during the next five years. Management estimates that revenues should exceed $100 million in 2000, earnings should be in the range of $2.5-3.0 million, and EBITDA should exceed $17.0 million. It is estimated that revenues, earnings, and EBITDA should exceed $130 million, $6.0 million, and $20 million, respectively, in 2002. By 2004, management anticipates that the Company's business will have grown substantially and targets revenues, earnings, and EBITDA in excess of $200 million, $20 million, and $35 million, respectively. This forward looking information is subject to, and qualified by, the trends and uncertainties in the Company's business described below and elsewhere in this Report. 20 22 RISKS AND UNCERTAINTIES IN THE BUSINESS Projected operating results will be affected by a wide variety of factors which could adversely impact revenues, profitability and cash flows. The Company's liquidity and available working capital will be dependent upon cash flow from operations, availability of funds under its credit agreement, and extensions or refinancings of certain indebtedness or, potentially, proceeds from asset sales or licensing. Other factors pertinent to the Company's ability to meet its current and five year financial projections include its leveraged status and the level and cost of debt; success in efforts to reduce fixed expenses and improve cash flows; ability to maintain margins or grow volumes in its automotive segment; success in building strategic alliances with large prime contractors and first tier suppliers to OEMs; competition and competitive pressures on pricing including from first tier supplier partners; customer order patterns and seasonally; the cyclical nature of the automobile industry and other markets addressed by the Company's products; the level and makeup of military expenditures; the costs of legal proceedings; contract mix and shifting production and delivery schedules among the Company's two business segments; amount of resources committed to independent research and development from time to time; proof of concept and production validation of certain of the Company's new technologies and proposed products; technological changes; the level of orders which are received and can be shipped and invoiced in a quarter; manufacturing capacity and yield; costs of labor, raw materials, supplies, and equipment; reliability of vendor base, and economic conditions in the United States and worldwide markets. As used throughout this report, the words "estimate," "anticipate," "expect," "should," "intend," "project," "target," or other expressions that indicate future events identify forward looking statements which are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results and trends may differ materially. Risks include those described herein and in the Company's registration statements and periodic reports filed with the U.S. Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has short-term borrowings supported by a long-term revolving Financing Agreement which subjects the Company to the risk of loss associated with movements in market interest rates. At December 31, 1999, the Company had $12.8 million in short-term borrowings outstanding and $68.0 million in long-term debt outstanding after giving effect to the $2.3 million original issue discount. Of the long-term debt outstanding, $60.7 million is fixed-rate debt and, accordingly, does not expose the Company to risk of earnings loss due to changes in market interest rates (see Note 7 to the Company's Consolidated Financial Statements). While the remaining $5 million of long-term debt was at a variable rate, it's retirement in February 2000 eliminated any significant exposure to the Company to interest rate risk. The short-term borrowings of $12.8 million are variable rate obligations. If the variable rates were to change by 10% from December 31, 1999, annual interest expense associated with the variable-rate debt would change by approximately $108,000, pretax. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are set forth in this report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 23 PART III In accordance with Instruction G (3) to Form 10-K, Items 10, 11, 12 and 13 of Form 10-K are incorporated herein by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934. 22 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. Financial Statements. Financial Statements appear beginning at page F-1. b. Reports on Form 8-K. The Company reported the disposition of its rail and mass transit seating business, through the sale of its wholly-owned subsidiary, Coach and Car Equipment Corporation, with its report on Form 8-K filed effective October 25, 1999. No financial statements were filed with the report. c. Exhibits. The following Exhibits are included pursuant to Item 601 of Regulation S-K.
NO. DESCRIPTION REFERENCE --- ----------- --------- 3.1 Articles of Incorporation of Simula, Inc., as amended and restated......... (2) 3.2 Bylaws of Simula, Inc., as amended and restated............................ (1) *4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior Subordinated Convertible Notes due May 1, 2004............ (4) 10.11 1992 Stock Option Plan, as amended effective September 15, 1998............ (8) 10.12 1992 Restricted Stock Plan................................................. (1) 10.21 1994 Stock Option Plan, as amended effective September 15, 1998............ (8) 10.26 Simula, Inc. Employee Stock Purchase Plan.................................. (2) 10.29 Form of Change of Control Agreements, as amended, between the Company and Donald W. Townsend, Bradley P. Forst, and James A. Saunders................ (6) 10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P. Forst, and James A. Saunders.................................... (7) 10.32 Employment Agreement between the Company and James C. Dodd dated March 2, 1999....................................................................... (10) 10.33 Change of Control Agreement between the Company and James C. Dodd dated March 2, 1999.............................................................. (10) 10.37 Simula, Inc. 1999 Incentive Stock Option Plan.............................. (11) 10.38 Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment Corporation, a wholly-owned subsidiary of the Company, dated August 31, 1999 and Note Refinancing Agreement dated October 21, 1999...... (12) 10.39 Promissory Note between the Company and Stanley P. Desjardins dated October 15, 1999 and Guarantees by Don and Nelda Townsend, James and Linda Saunders and Bradley and Teresa Forst dated November 2, 1999............... (13) *10.40 Asset Purchase Agreement for the sale of Airline Interiors, Inc., a wholly-owned subsidiary of the Company, dated December 24, 1999............ *10.41 Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30, 1999.......................................................... 10.42 Securities Purchase Agreement with Levine Leichtman Capital Partners II, L.P. dated December 31, 1999............................................... (14) *10.43 Employment Agreement between the Company and Joseph W. Coltman dated February 1, 2000........................................................... *10.44 Change of Control Agreement between the Company and Joseph W. Coltman dated February 1, 2000..................................................... *10.45 Promissory Note between the Company and Stanley P. Desjardins dated December 31, 1999, effective December 14, 1999............................. 18. Preference Letter re: change in accounting principles...................... (3) *21. Subsidiaries of the Company................................................ *23. Independent Auditors' Consent.............................................. +24. Powers of Attorney - Directors............................................. (5)(9) *27. Financial Data Schedule
- ---------- * Filed herewith. + Power of Attorney of S. Thomas Emerson filed herewith. All other Powers of Attorney filed as noted. 25 (1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under the Securities Act of 1933, effective April 13, 1992. (2) Filed with Definitive Proxy on May 15, 1996, for the Company's Annual Meeting of Shareholders held on June 20, 1996. (3) Filed with report on Form 10-Q/A for the quarter ended June 30, 1996. (4) Filed with Registration Statement on Form S-3/A, No. 333-13499, under the Securities Act of 1933, effective April 21, 1997. (5) Filed with report on Form 10-K for the year ended December 31, 1997. (6) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Change of Control Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in that Mr. Townsend is entitled to an amount equal to five (5) years base salary and benefits upon a change of control while Messrs. Forst and Saunders are entitled to an amount equal to four (4) years base salary and benefits upon a change of control. (7) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Employment Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in the following two respects: (i) the initial term of the agreement with Mr. Townsend is five (5) years while the initial term of the agreement with Messrs. Forst and Saunders is three (3) years; and (ii) the post-termination non-compete period with Mr. Townsend is thirty (30) months while it is eighteen (18) months with Messrs. Forst and Saunders. (8) Filed with report on Form 10-Q for the quarter ended September 30, 1998. (9) Filed with report on Form 10-K for the year ended December 31, 1998. (10) Filed with report on Form 10-Q for the quarter ended March 31, 1999. (11) Filed as Appendix A with Definitive Proxy on May 14, 1999, for the Company's Annual Meeting of Shareholders held on June 17, 1999. (12) Filed with report on Form 8-K, under the Securities Act of 1933, effective October 25, 1999. (13) Filed with report on Form 10-Q for the quarter ended September 30, 1999. (14) Filed with Schedule 13D, under the Securities Exchange Act of 1934, on January 10, 2000 effective December 31, 1999 by Levine Leichtman Capital Partners II, L.P. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona, on April 14, 2000. SIMULA, INC. By /s/ Donald W. Townsend ---------------------- Donald W. Townsend, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Donald W. Townsend President and Director April 14, 2000 - ------------------------------------ Donald W. Townsend /s/ James C. Dodd Executive Vice President, Chief April 14, 2000 - ------------------------------------ Financial Officer and Treasurer James C. Dodd (Principal Financial and Accounting Officer) /s/ Bradley P. Forst Executive Vice President, General April 14, 2000 - ------------------------------------- Counsel, Secretary and Director Bradley P. Forst /s/ James A. Saunders Executive Vice President, Chief April 14, 2000 - ------------------------------------ Operating Officer James A. Saunders * Chairman of the Board of Directors April 14, 2000 - ------------------------------------ Stanley P. Desjardins * Director April 14, 2000 - ------------------------------------ James C. Withers * Director April 14, 2000 - ------------------------------------ Robert D. Olliver * Director April 14, 2000 - ------------------------------------ John M. Leinonen * Director April 14, 2000 - ------------------------------------ Lon A. Offenbacher * Director April 14, 2000 - ------------------------------------ S. Thomas Emerson *By: /s/Bradley P. Forst ------------------------------- Bradley P. Forst Attorney-in-Fact
25 27 SIMULA, INC. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report........................................................... F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998........................... F-3 Consolidated Statements of Operations for the three years ended December 31, 1999...... F-4 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the three years ended December 31, 1999...................................... F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 1999...... F-6 to F-7 Notes to Consolidated Financial Statements............................................. F-8 to F-26
F-1 28 INDEPENDENT AUDITORS' REPORT Directors and Shareholders Simula, Inc. and Subsidiaries Phoenix, Arizona We have audited the accompanying consolidated balance sheets of Simula, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and of cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Simula, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Deloitte & Touche LLP March 29, 2000 Phoenix, Arizona F-2 29 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,223,236 $ 933,462 Contract and trade receivables - Net 24,756,984 27,113,757 Inventories 7,540,570 26,021,433 Deferred income taxes 2,621,000 3,173,000 Prepaid expenses and other 728,772 601,614 Net assets held for sale 12,036,242 -- Net current assets of discontinued operations -- 4,580,773 ------------- ------------- Total current assets 52,906,804 62,424,039 PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS - Net 13,947,099 21,494,535 DEFERRED INCOME TAXES 33,438,000 20,550,000 DEFERRED FINANCING COSTS 4,897,773 2,627,765 INTANGIBLES - Net 1,788,057 3,452,402 OTHER ASSETS 362,368 430,340 ------------- ------------- TOTAL $ 107,340,101 $ 110,979,081 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Revolving line of credit $ 12,751,595 $ 16,900,000 Trade accounts payable 6,104,583 11,028,062 Accrued restructuring costs 6,742,000 -- Other accrued liabilities 8,267,305 7,496,841 Advances on contracts 2,121,232 2,220,737 Current portion of long-term debt 11,908,303 7,530,222 ------------- ------------- Total current liabilities 47,895,018 45,175,862 LONG-TERM DEBT - Less current portion 53,820,177 47,233,558 ------------- ------------- Total liabilities 101,715,195 92,409,420 REDEEMABLE CONVERTIBLE 6% SERIES A PREFERRED STOCK, $.05 par value - issued 2,250 shares 2,250,000 ------------- SHAREHOLDERS' EQUITY Preferred stock, $.05 par value - authorized 50,000,000 shares; issued 2,250 shares redeemable convertible 6% series A preferred stock Common stock, $.01 par value - authorized, 50,000,000 shares; issued 11,103,827 and 9,915,391 111,038 99,154 Additional paid-in capital 59,987,309 51,742,593 Accumulated deficit 56,384,215 (33,452,571) Accumulated other comprehensive income (339,226) 180,485 ------------- ------------- Total shareholders' equity 3,374,906 18,569,661 ------------- ------------- TOTAL $ 107,340,101 $ 110,979,081 ============= =============
See notes to consolidated financial statements F-3 30 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997 ---- ---- ---- Revenue $ 131,392,426 $ 100,644,678 $ 67,362,456 Cost of revenue 102,984,129 85,723,846 51,781,020 ------------- ------------- ------------- Gross margin 28,408,297 14,920,832 15,581,436 Administrative expenses 26,679,304 20,420,763 18,697,971 Restructuring charge 18,377,239 ------------- ------------- ------------- Operating loss (16,648,246) (5,499,931) (3,116,535) Interest expense (7,246,105) (5,099,194) (4,173,273) Other income 1,298,026 ------------- ------------- ------------- Loss before income taxes, discontinued operations (23,894,351) (10,599,125) (5,991,782) and extraordinary item Income tax benefit 8,437,000 3,786,000 2,390,049 ------------- ------------- ------------- Loss before discontinued operations and extraordinary item (15,457,351) (6,813,125) (3,601,733) Discontinued Operations: (Loss) earnings from discontinued operations, net of the related income tax benefit (expense) of $1,276,000 and ($126,000) (2,319,388) 62,207 Estimated loss on disposal, net of the related income tax benefit of $3,898,000 and $10,224,000 (7,238,109) (18,576,000) Extraordinary loss on early retirement of debt, net of the related income tax benefit of $81,000 (151,295) ------------- ------------- ------------- Net loss (22,846,755) (27,708,513) (3,539,526) Dividends on preferred stock 279,536 ------------- ------------- ------------- Net loss available for common shareholders $ (23,126,291) $ (27,708,513) $ (3,539,526) ============= ============= ============= (Loss) earnings per common share - basic and diluted: (Loss) earnings before discontinued operations and extraordinary loss $ (1.54) $ (0.69) $ (0.39) (Loss) earnings from discontinued operations -- (0.23) 0.01 Estimated loss on disposal (0.71) (1.88) Extraordinary loss on early extinguishment of debt (0.01) ------------- ------------- ------------- Net loss $ (2.26) $ (2.80) $ (0.38) ============= ============= =============
F-4 31 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME THREE YEARS ENDED DECEMBER 31, 1999
Additional Accumulated Common Stock Paid-In (Deficit) Shares Amount Capital Earnings ------ ------ ------- -------- BALANCE, January 1, 1997 8,992,598 $ 89,926 $39,031,453 $ (1,966,296) Net loss (3,539,526) Issuance of Common shares 178,601 1,786 2,059,132 Conversion of Series C 10% Senior Subordinated Convertible Notes 679,633 6,796 9,586,245 Tax benefit from options exercised 433,000 Currency translation adjustment ---------- -------- ----------- ------------ BALANCE, December 31, 1997 9,850,832 98,508 51,109,830 (5,505,822) Net loss (27,708,513) Issuance of common shares 64,559 646 622,763 Recognition of Minimum (238,236) Pension Liability Tax benefit from options exercised 10,000 Currency translation adjustment ---------- -------- ----------- ------------ BALANCE, December 31, 1998 9,915,391 99,154 51,742,593 (33,452,571) Net loss (22,846,755) Issuance of common shares 111,362 1,114 1,538,362 Conversion of redeemable convertible Series A Preferred Stock and accrued dividends thereon 1,077,074 10,770 4,382,354 Preferred Stock dividends (279,536) Minimum pension liability adjustment 194,647 Warrants Issued 2,300,000 Tax benefit from options exercised 24,000 Currency translation adjustment ---------- -------- ----------- ------------ BALANCE, December 31, 1999 11,103,827 $111,038 $59,987,309 $(56,377,215) ========== ======== =========== ============
Accumulated Total Other Comprehensive Shareholders' Comprehensive Income Equity Income ---------- ------ ------ BALANCE, January 1, 1997 $ 32,414 $37,187,497 Net loss (3,539,526) $ (3,539,526) Issuance of Common shares 2,060,918 Conversion of Series C 10% Senior Subordinated Convertible Notes 9,593,041 Tax benefit from option exercises 433,000 Currency translation adjustment (92,524) (92,524) (92,524) --------- ----------- ------------ BALANCE, December 31, 1997 (60,110) 45,642,406 $ (3,632,050) ============ Net loss (27,708,513) $(26,540,513) Issuance of common shares 623,409 Recognition of Minimum (238,236) (238,236) Pension Liability Tax benefit from options exercised 10,000 Currency translation adjustment 240,595 240,595 240,595 --------- ----------- ------------ BALANCE, December 31, 1998 180,485 18,569,661 $(26,538,154) ============ Net loss (22,846,755) $(22,846,755) Issuance of common shares 1,539,476 Conversion of redeemable convertible Series A Preferred Stock and accrued dividends thereon 4,393,124 Preferred Stock dividends (279,536) (279,536) Minimum pension liability adjustment 194,647 194,647 Warrants Issued 2,300,000 Tax benefit from options exercised 24,000 Currency translation adjustment (519,711) (519,711) (519,711) --------- ----------- ------------ BALANCE, December 31, 1999 $(339,226) $ 3,374,906 $ ========= =========== ============
See notes to consolidated financial statements F-5 32 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 1999 - --------------------------------------------------------------------------------
1999 1998 1997 ------------- ------------- ------------- Cash flows used for operating activities: Net loss $ (22,846,755) $ (27,708,513) $ (3,539,526) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 5,807,563 4,646,531 3,505,328 Deferred income taxes (12,442,000) (15,314,000) (2,262,000) Currency translation adjustment (519,711) 240,595 (92,524) Provision for loss on disposal of discontinued operations 11,136,109 28,800,000 Restructuring Charge 18,326,819 Write down of trade accounts receivable 1,290,394 Gain on sale of property (385,349) (1,298,026) Loss on early extinguishment of debt 232,295 Changes in net assets and liabilities: Contract and trade receivables, net of advances (5,515,796) (3,159,038) (8,628,705) Inventories 431,069 (2,249,003) (10,868,627) Income taxes receivable 942,665 Prepaid expenses and other (127,158) 733,752 374,448 Deferred costs (229,758) Other assets 67,972 67,485 233,462 Net assets of discontinued operations (4,398,565) (7,635,772) (628,900) Trade accounts payable 294,143 1,195,854 3,389,723 Other accrued liabilities (161,662) 1,436,789 2,317,844 ------------- ------------- ------------- Net cash used by operating activities (8,810,632) (19,175,078) (16,554,838) ------------- ------------- ------------- Cash flows used for investing activities: Purchase of property and equipment (2,800,376) (6,188,725) (7,980,581) Proceeds from sale of property and equipment 2,980,717 6,100,000 Costs incurred to obtain intangibles (4,099,284) (235,273) (326,796) ------------- ------------- ------------- Net cash used by investing activities (3,918,943) (6,423,998) (2,207,377) ------------- ------------- ------------- Cash flows from financing activities: Net (repayments) borrowings under line of credit (4,148,405) 16,900,000 (6,900,000) Issuance of 9-1/2% notes - net of expenses 962,054 Issuance of 8% notes - net of expenses 31,186,226 Borrowings under other debt arrangements 27,160,631 7,569,081 4,895,636 Principal payments under other debt arrangements (13,895,931) (8,889,037) (4,412,275) Issuance of common shares - net of expenses 507,355 623,409 2,060,918 Issuance of preferred shares - net of expenses 7,500,000 Preferred stock dividends (104,301) ------------- ------------- ------------- Net cash provided by financing activities 17,019,349 17,165,507 26,830,505 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents 4,289,774 (8,433,569) 8,068,290 Cash and cash equivalents at beginning of year 933,462 9,637,031 1,298,741 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 5,223,236 $ 933,462 $ 9,637,031 ============= ============= =============
F-6 33 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) THREE YEARS ENDED DECEMBER 31, 1999 - --------------------------------------------------------------------------------
1999 1998 1997 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $7,587,792 $5,534,092 $3,284,192 ========== ========== ========== Taxes paid $ 36,513 $ 41,200 $ 125,900 ========== ========== ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In 1999, $5,250,000 of Series A Preferred Stock plus accrued dividends of $175,234 were exchanged for 1,077,074 shares of common stock. Tax benefits from exercise of stock options $ 202,000 $ 10,000 $ 433,000 ========== ========== ========== In 1997, $9,550,000 of Series C 10% Senior Subordinated Convertible Notes and accrued interest of $475,548 less deferred net issuance costs of $432,507 were exchanged for 679,633 shares of common stock. $9,593,041 ========== Property and equipment acquired under capital leases $ 396,411 ==========
F-7 34 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1999 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The consolidated financial statements include the accounts of Simula, Inc. ("Simula") and its subsidiaries (collectively the "Company"). All of the subsidiaries are wholly owned. All intercompany transactions are eliminated in consolidation. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Described below are those generally accepted accounting principles particularly significant to the Company, including those selected from acceptable alternatives. a. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. b. Revenue related to government contracts results principally from long-term fixed price contracts and is recognized on the percentage-of-completion method calculated utilizing the cost-to-cost approach. The percent deemed to be complete is calculated by comparing the costs incurred to date to estimated total costs for each contract. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. Adjustments to this measurement are made however, when management believes that costs incurred materially exceed effort expended. Contract costs include all direct material and labor costs, along with certain overhead costs related to contract production. Provisions for any estimated total contract losses on uncompleted contracts are recorded in the period in which it is concluded that such losses will occur. Revenue derived from sales of airline and automotive commercial products is recognized at contractual amounts when the product is shipped. c. Inventories include raw materials not yet applied to contracts and raw materials, work-in-process and finished goods applicable to commercial products. Inventories are recorded at cost and are carried at the lower of cost or net realizable value. Amounts are removed from inventory using the first-in first-out method. d. Property, equipment and leasehold improvements are stated at cost. Amortization of capital leases and leasehold improvements is calculated on a straight-line basis over the life of the asset or term of the lease, whichever is shorter. Depreciation on equipment is calculated on a straight-line basis over estimated useful lives of three to twelve years and buildings are depreciated on a straight-line basis over estimated useful lives of thirty years. e. Deferred financing costs are amortized over the life of the related debt using the effective interest method. f. Intangibles are recorded at cost. The Company acquires intangible assets in the normal course of business. The Company periodically reviews for changes in circumstances to determine whether there are conditions that indicate that the carrying amount of such assets may not be recoverable. If such conditions are deemed to exist, the Company will determine whether estimated future undiscounted cash flows are less than the carrying amount of such assets, in which case the F-8 35 Company will calculate an impairment loss. Impairment losses, if any, will be recorded as a component of operating earnings. Intangibles are amortized on a straight-line basis over 7 to 20 years. g. Foreign currency assets and liabilities are translated into United States dollars using the exchange rates in effect at the balance sheet date. The effects of exchange rate fluctuations on translation of assets and liabilities are reported as a separate component of shareholders' equity. h. Statements of Cash Flows - Cash and cash equivalents presented in the statements of cash flows consist of cash on hand and highly liquid investments with an original maturity of three months or less. i. (Loss) earnings per common share - In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 128, Earnings Per Share. SFAS No. 128 requires the dual presentation of basic and diluted earnings per share on the face of the income statement and the disclosure of the reconciliation between the numerators and denominators of basic and diluted earnings per share calculations. Earnings per share amounts for the years ended December 31, 1999, 1998 and 1997 are calculated using only weighted average outstanding shares of 10,230,720, 9,880,283 and 9,288,416, respectively. Options to purchase common stock and shares to be issued upon conversion of the Preferred Stock, 8% Notes and 10% Notes totaling 6,119,039 for the year ended December 31, 1999 were not used for computing diluted earnings per share because the result would be anti-dilutive. Options to purchase common stock and shares to be issued upon conversion of the 8% Notes and 10% Notes totaling 4,546,065 and 3,896,966 for the years ended December 31, 1998 and 1997, respectively were not used for computing diluted earnings per share because the result would be anti-dilutive. j. New accounting pronouncements - In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, requires that entities record all derivatives as assets or liabilities, measured at fair value, with the change in fair value recognized in earning or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 (as amended) is effective for the fiscal year ending 2001. The Company has not completed evaluating the effects this statement will have on its financial position or results of operations. 2. RECEIVABLES Costs and estimated earnings in excess of billings on uncompleted contracts represent revenue recognized on long-term contracts in excess of billings because amounts were not billable at the balance sheet date. Amounts receivable from the United States Government or receivable under United States Government related subcontracts will generally be billed in the following month or when the contract and all options thereunder are completed. Amounts due on other contracts are generally billed as shipments are made, subject to retainages. It is estimated that substantially all of such amounts will be billed and collected within one year, although contract extensions may delay certain collections beyond one year. F-9 36 At December 31, receivables include the following:
1999 1998 ---- ---- United States Government: Billed receivables $ 3,137,800 $ 1,702,085 Costs and estimated earnings in excess of billings 5,577,074 6,366,253 ------------ ------------ Total United States Government 8,714,874 8,068,338 ------------ ------------ Other contracts: Billed receivables 4,135,118 3,171,740 Costs and estimated earnings in excess of billings 6,910,775 4,624,648 ------------ ------------ Total other contracts 11,045,893 7,796,388 ------------ ------------ Other trade receivables 5,196,217 11,449,031 Less allowance for doubtful accounts (200,000) (200,000) ------------ ------------ Contract and trade receivables - net $ 24,756,984 $ 27,113,757 ============ ============
3. INVENTORIES At December 31, inventories consisted of the following:
1999 1998 ---- ---- Raw Materials $ 5,101,426 $15,581,952 Work-in-process 1,967,397 9,077,849 Finished goods 471,747 1,361,632 ----------- ----------- Total inventories $ 7,540,570 $26,021,433 =========== ===========
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS At December 31, property, equipment and leasehold improvements consisted of the following:
1999 1998 ---- ---- Land $ 816,888 $ 1,603,870 Buildings and leasehold improvements 2,061,674 4,120,501 Equipment 21,931,912 26,295,766 ------------ ------------ Total 24,810,474 32,020,137 Less accumulated depreciation and amortization (10,863,375) (10,525,602) ------------ ------------ Property, equipment and leasehold improvements - net $ 13,947,099 $ 21,494,535 ------------ ------------
F-10 37 5. INTANGIBLES At December 31 intangibles consisted of the following:
1999 1998 ---- ---- Patents and licenses $ 1,570,385 $ 1,245,270 Other 783,963 783,968 Covenants not to compete -- 2,489,356 Goodwill -- 1,059,553 ----------- ----------- Total 2,354,348 5,578,147 Less accumulated amortization (566,291) (2,125,745) =========== =========== Intangibles - net $ 1,788,057 $ 3,452,402 =========== ===========
6. REVOLVING LINE OF CREDIT On December 30, 1999, the Company executed a Financing Agreement with an asset based-lender which provided for a $17,000,000 revolving line of credit and a $5,000,000 Senior Secured term note payable. The proceeds received from this financing together with the proceeds received from the Senior Secured Notes discussed below, were utilized primarily to replace the Company's then revolving line of credit and two term notes payable with a bank and retire $4,250,000 of the Company's 10% Senior Subordinated Convertible Notes (the "10% Notes"). The Company's availability under the revolving line of credit is dependent upon the relative balances of accounts receivable and inventories and each of their relative advance percentages. The revolving line of credit accrues interest at the Chase Manhattan prime rate or LIBOR plus 2.4% based upon the rate selected by the Company and matures December 30, 2003 and renews automatically unless terminated by either party with proper notice. The outstanding balance under this line of credit was $12,751,595 and the average interest rate was 8.5% at December 31, 1999. The Financing Agreement contains covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Company was in compliance with all of these covenants at December 31, 1999. The Financing Agreement may be terminated with 60 days notice prior to each anniversary date of the agreement at no additional cost. If the Financing Agreement is terminated at any other time, an early termination fee based upon the outstanding principal under the revolving line of credit of 1 1/2% during the first year and 3/4% after the first anniversary and before the second anniversary shall be assessed. The Financing Agreement is secured by the assets of the Company. F-11 38 7. LONG-TERM DEBT Long-term debt at December 31 consisted of the following:
1999 1998 ---- ---- 8% Senior Subordinated Convertible Notes $ 34,500,000 $ 34,500,000 Senior Secured Notes, net of discount of $2,300,000 22,700,000 -- 10% Senior Subordinated Convertible Notes -- 4,750,000 9 1/2% Senior Subordinated Notes 3,238,000 3,238,000 Note Payable to Chairman of the Board 2,000,000 -- Various loans payable, secured by property and equipment 1,024,224 10,287,560 Various mortgage notes payable, secured by land and buildings 2,036,789 1,330,944 Obligations under capital leases, interest at 10% (Note 13) 229,467 657,276 ------------ ------------ Total 65,728,480 54,763,780 Less current portion (11,908,303) (7,530,222) ------------ ------------ Long-term debt $ 53,820,177 $ 47,233,558 ============ ============
On December 30, 1999, the Company executed agreements with an asset based lender for a $17,000,000 revolving line of credit (Note 6) and a $5,000,000 Senior Secured Note, and with an accredited investor for two Senior Secured Notes totaling $20,000,000. Net proceeds under these agreements was $34,831,949 and were used to replace the Company's then outstanding revolving line of credit and two term notes payable with a bank totaling $29,333,334, retire $4,250,000 the Company's 10% Senior Subordinated Convertible Notes and repay one note payable to the Chairman of the Board in the amount of $1,000,000. As a result of the above refinancing, a pre-tax extraordinary charge on early retirement of debt was recorded for the year ended 1999 related to the write-off of deferred financing fees of $232,295. The $5,000,000 Senior Secured term note payable with the asset based lender was retired on February 2, 2000 with proceeds received from the sale of the Company's airline new seat manufacturing operation. Two Senior Secured Notes in the amounts of $5,000,000 (the "Term Note A") and $15,000,000 (the "Term Note B") (together the "Term Notes") were issued with a warrant to purchase 850,000 shares of common stock at $5.00 per share. The warrant is immediately exercisable and will expire in 7 years. The Company has recorded an original issue discount related to the stock warrant of $2,300,000 and shall be amortized over the term of the underlying notes using the effective interest method. The Term Note A matures on September 30, 2000, accrues interest payable monthly at 15% and provides for an additional monthly bridge fee of $25,000. The Term Note A may be redeemed with a 30 day notice at any time without penalty. The Term Note B matures on June 30, 2003 and provides for cash interest to be paid monthly at 12.25% and interest which is to be capitalized into the note principal balance at 3% per month. The Term Note B may be redeemed with a 30 day notice at certain specified redemption prices plus accrued interest payable to the redemption date. The Term Notes contain covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Company was in compliance with all of these covenants at December 31, 1999. The Term Notes are secured by the assets of the Company. On October 15, 1999, the Company entered into a $1,000,000 Promissory Note with it's Chairman of the Board of Directors. The note bears interest at 12%, matures on October 15, 2000, and provides for a placement fee of $20,000 to be paid upon maturity or any accelerated repayment of the note. In addition, the note provides for an accelerated maturity in the event the Company completes a senior credit banking agreement, or a public or private offering of debt or equity securities for proceeds of $10,000,000 or more. F-12 39 'The Company repaid the October 15, 1999 note in full on January 6, 2000 from the proceeds received from the Senior Secured Notes issued on December 30, 1999 discussed above. On December 14, 1999, the Company entered into a second $1,000,000 Promissory Note with it's Chairman of the Board of Directors. The note is unsecured and subordinated to the Company's Senior Secured Notes. The note bears interest at 12%, matures on December 31, 2003, and provides for a placement fee of $20,000 to be paid upon maturity. Voluntary prepayment of the note is prohibited, however, the note is subject to mandatory prepayment at the option of the holder if all of the following conditions have been satisfied: (1) The $5,000,000 Senior Secured Note to the asset based lender has been paid in full; (2) The $5,000,000 Senior Secured Note to an outside accredited investor has been paid in full; (3) after giving effect to the mandatory prepayment to be made hereunder, the availability under the Company's revolving line of credit is not less the $2,000,000. In November 1998, the Company completed a private placement to accredited investors of $3,238,000 of it 9 1/2% Senior Subordinated Notes (the "9 1/2% Notes") and received proceeds of $1,025,000 and exchanged $2,213,000 of its 12% Notes. The 9 1/2% Notes are due on September 30, 2003 and bear interest at 9 1/2% per annum, payable semi-annually. The 9 1/2% Notes may be redeemed at the Company's option, upon at least 30 days' notice, in whole or in part on a pro rata basis, on and after April 30, 1999, at 102% of par value plus accrued interest payable to the redemption date. The net proceeds received under the 9 1/2% Notes were utilized in the retirement of the 12% Notes upon maturity. During 1997, the Company completed the public offering of $34.5 million of its 8% Senior Subordinated Convertible Notes (the "8% Notes"). The 8% Notes are due May 1, 2004 and bear interest at 8% per annum, payable semi-annually. The 8% Notes are convertible into shares of the Company's common stock at a price of $17.55 per share of common stock. The 8% Notes may be redeemed at the Company's option in whole or in part on a pro rata basis, on and after May 1, 1999, at certain specified redemption prices plus accrued interest payable to the redemption date. However, on or after May 1, 1999 and prior to April 30, 2000, the 8% Notes will not be redeemable unless the closing price of the Company's common stock has equaled or exceeded $23.625 for 20 trading days within a period of 30 consecutive trading days. The indenture relating to the 9 1/2% Notes and the 8% Notes contains certain covenants including limitations on additional indebtedness, the sale of assets, liens securing indebtedness other than senior indebtedness, payment restrictions affecting subsidiaries, transactions with affiliates, future senior subordinated indebtedness and mergers and consolidations. In accordance with the indenture, the Company may incur indebtedness under senior credit facilities up to $50 million and may incur other indebtedness based upon a specified ratio of cash flow, as defined, to interest expense. The Company was in compliance with all of the covenants of this indenture at December 31, 1999. The aggregate principal payments required after amortization of the original issue discount for the five years subsequent to December 31, 1999 are:
2000 $11,908,303 2001 792,114 2002 640,443 2003 19,280,954 2004 34,535,945 Thereafter 870,720 ----------- Total $68,028,480 ===========
F-13 40 Interest expense for the years ended December 31 is comprised of the following:
1999 1998 1997 ---- ---- ---- Interest $6,847,559 $5,234,857 $4,342,715 Amortization of deferred financing costs 846,808 801,836 725,147 ---------- ---------- ---------- Interest expense $7,694,367 $6,036,693 $5,067,862 ========== ========== ==========
Interest expense allocated to discontinued operations for the years ended 1999, 1998 and 1997 was $448,262, $937,499 and $894,589, respectively. Based on borrowing rates currently available to the Company and the quoted market prices for the 8% Notes, the fair value of long-term debt at December 31, 1999 is approximately $53,653,480. 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK On March 29, 1999, the Company completed a private placement to an accredited investor of $7.5 million of the Company's Series A Convertible Preferred Stock (the "Series A"). Under the terms of this offering the Series A bears a dividend rate of 6% per annum payable quarterly in cash, or in stock that will be valued at 90% of fair market value at the time of payment. The Series A may be converted into shares of the Company's Common Stock at market value at any time at 101% of the average closing price of any 15 out of 30 consecutive trading days preceding conversion, up to a specified maximum conversion price (the "Conversion Cap"). The Conversion Cap for the first twelve months is $8.60 per share and is subject to an annual adjustment to the lesser of the then existing Conversion Cap or 130% of the average of the closing bid prices for 20 consecutive trading days immediately proceeding the annual adjustment anniversary date. In addition, the first year Conversion Cap was subject to an interim adjustment on August 1, 1999 and was adjusted on that date to $8.04 per share. Conversion of the Series A is limited to 10% of the initial amount per month, accumulating monthly up to a maximum of 30% of the accumulated convertible amount in any month. The Company may require the conversion of the Series A if the Market price of the Company's Common Stock exceeds the Conversion Cap by at least 50% for at least 20 consecutive trading days, subject to the same conversion limitations imposed upon the Series A holders. Series A Preferred Stock is subject to a mandatory redemption of the remaining outstanding shares on May 1, 2004 at which time the Company is required to redeem all such shares at the greater of 130% of the preferred stock stated value plus accrued and unpaid dividends, or the average of the closing bid prices on the ten consecutive trading days immediately preceding the redemption date. The holders of the Company's Series A Preferred Stock have the option to require the company to redeem all or a portion of the Series A Preferred Stock at a redemption price equal to 105% of the preferred stock stated value plus accrued and unpaid dividends if the Company consolidates or merges with or into another company. During the year ended December 31, 1999, $5,250,000 of Series A Preferred Stock plus accrued dividends of $175,234 were exchanged for 1,077,074 shares of the Company's common stock. 9. STOCK OPTIONS AND STOCK PLANS In 1992, the Company adopted the 1992 Stock Option Plan which provided for the issuance of up to 360,000 shares of common stock. All options available under the 1992 Plan have been granted. In August 1994, the Company adopted the 1994 Stock Option Plan which reserves up to 2,500,000 shares of common stock for issuance under the Plan. In June 1999, the Company adopted the 1999 Stock Option Plan which F-14 41 reserves up to 2,000,000 shares of common stock for issuance under the Plan. Options granted under the 1994 and 1999 Plans as of December 31, 1999 were 3,060,488. Information with respect to the Plans is as follows:
OPTION WEIGHTED AVERAGE SHARES OPTION PRICE ------ ------------ Outstanding at December 31, 1996 921,929 $11.78 Granted 858,900 $13.84 Exercised (126,575) $10.51 Canceled (3,100) $13.91 --------- Outstanding at December 31, 1997 1,651,154 $12.94 Granted 676,517 $14.07 Exercised (9,700) $12.01 Canceled (29,600) $13.04 --------- Outstanding at December 31, 1998 2,288,371 $13.83 Granted 753,900 $ 5.64 Exercised (16,250) $ 5.27 Canceled (34,525) $ 7.08 --------- Outstanding at December 31, 1999 2,991,496 =========
Options are generally exercisable one year from the date of grant for up to ten years at a price equal to 100% of the fair market value at the date of grant or 85% of fair market value in the case of non-statutory options. As of December 31, 1999, 1998, and 1997, exercisable options were 2,622,345, 1,976,854, and 1,127,304, respectively. The Company resinded certain 1999 stock option exercises subsequent to their original exercise and accordingly, these exercises are not reflected in the above table. On December 1, 1998, 584,392 options that had been previously granted to the Company's non-executive management employees were repriced at $7.00 per share which represents the fair market value at the date of repricing. These options retain the same characteristics as their original grant. The following information, aggregated by option price ranges, is applicable to options outstanding at December 31, 1999:
Range of exercise prices ............................................... $3.25-$7.00 $8.63-$20.50 Shares outstanding in range ............................................ 1,071,920 1,842,719 Weighted-average exercise price ........................................ 6.15 12.79 Weighted-average remaining contractual life ............................ 8.01 7.06 Shares currently exercisable ........................................... 823,520 1,721,968 Weighted-average exercise price of shares currently exercisable ........ 6.29 13.16
The estimated fair value of options granted during 1999 was $2.75 Per share. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been recognized based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, the Company's net (loss) earnings and net (loss) earnings per share for the three years ended December 31, 1999 would have been reduced to the pro forma amounts indicated below: F-15 42
1999 1998 1997 ---- ---- ---- Net loss available to common shareholders - as reported $ (22,846,755) $ (27,708,513) $ (3,539,526) ============== ============== ============== Net loss available to common shareholders - pro forma $ (24,005,217) $ (29,683,277) $ (6,222,900) ============== ============== ============== Loss per share - basic - as reported $ (2.26) $ (2.80) $ (0.38) ============== ============== ============== Loss per share - basic - pro forma $ (2.37) $ (3.00) $ (0.67) ============== ============== ==============
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model. For the year ended December 31, 1999 the assumptions used for grants were no dividend yield, and expected volatility of 61%, a risk free interest rate of 5% and expected lives of 3.5 years. For the year ended December 31, 1998, the assumptions used for grants were no dividend yield, an expected volatility of 53%, a risk-free interest rate of 4.5% and expected lives of 3 years. For the years ended December 31, 1997, the assumptions used for grants were no dividend yield, an expected volatility of 46%, a risk-free interest rate of 5.5% and expected lives of 3 years. RESTRICTED STOCK PLAN - In 1992, the Company adopted the 1992 Restricted Stock Plan authorizing the Company to grant to key employees of the Company the right to purchase up to an aggregate of 19,500 shares of common stock at $.01 per share. The Company has reserved 19,500 shares of common stock for issuance pursuant to the Restricted Stock Plan, of which 4,623 shares have been awarded. EMPLOYEE STOCK PURCHASE PLAN - On June 20, 1996, the Company adopted the Employee Stock Purchase Plan (the "ESPP") to allow eligible employees of the Company to acquire shares of the Company's common stock at periodic intervals, paid for with accumulated payroll deductions over a six month offering period. A total of 400,000 shares of the Company's common stock have been reserved for issuance under the ESPP. The first offering period under the ESPP began October 1, 1996. 10. BENEFIT PLANS The Company has a noncontributory defined benefit pension plan (the "Plan") for employees. To be eligible to participate, employees must have completed six months of continuous employment and have attained the age of 21. Benefits are based on length of service and the employee's final pay (averaged over the five highest consecutive years of the last ten years of participation). The Company makes contributions to the Plan based upon actuarially determined amounts. Effective July 1, 1999, the Company froze the Plan for new participants. F-16 43 The Plan's funded status and amounts recognized in the Company's balance sheet at December 31 are as follows:
1999 1998 ---- ---- Actuarial present value of benefit obligation: Vested $ 2,843,693 $ 2,574,688 Nonvested benefits 479,676 470,672 ----------- ----------- Accumulated benefit obligation 3,323,369 3,045,360 Effect of projected future compensation increases 971,316 659,652 ----------- ----------- Projected benefit obligation 4,294,685 3,705,012 Plan assets at fair value 2,689,792 2,212,953 ----------- ----------- Unfunded status 1,604,893 1,492,059 Unrecognized prior service costs 50,038 216,977 Unrecognized loss (1,075,877) (1,353,003) Unrecognized transition liability 73,486 79,138 ----------- ----------- Accrued benefit cost 652,540 435,171 Additional minimum liability 72,589 397,236 ----------- ----------- Accrued benefit liability 725,129 832,407 Accumulated other comprehensive income adjustments 72,589 397,236 ----------- ----------- Net amount recognized $ 652,540 $ 435,171 =========== ===========
Reconciliation of the Plan benefit obligation is as follows:
1999 1998 ---- ---- Beginning benefit obligation $ 3,705,012 $ 2,914,208 Service cost 483,703 366,594 Interest Cost 275,689 211,324 Actuarial (gain)/loss (184,837) 547,798 Plan amendments 154,641 (230,547) Benefits paid (139,523) (104,365) ----------- ----------- Ending benefit obligation $ 4,294,685 $ 3,705,012 =========== ===========
Reconciliation of the fair value of plan assets is as follows:
1998 1998 ---- ---- Beginning fair value of plan assets $ 2,212,953 $ 2,034,500 Employer contributions 457,884 444,081 Actual gain/(loss) 156,925 (161,263) Benefits paid (137,970) (104,365) ----------- ----------- Ending fair value of plan assets $ 2,689,792 $ 2,212,953 =========== ===========
F-17 44 Net periodic pension cost includes the following:
1999 1998 1997 ---- ---- ---- Service Cost $ 483,703 $ 366,594 $ 307,249 Interest Cost 275,689 211,324 175,039 Expected return on assets (187,260) (172,330) (144,306) Transition asset recognition (5,652) (5,652) (5,652) Prior service cost (12,298) (28,809) (4,572) Net loss recognition 122,624 52,995 13,021 --------- --------- --------- Net periodic benefit cost $ 676,806 $ 424,122 $ 340,779 ========= ========= =========
Assumptions at December 31 used in the accounting for the Plan were as follows:
1999 1998 1997 ---- ---- ---- Discount or settlement rate 7.75% 6.75% 7.25% Rate of increase in compensation levels 3.75% 3.00% 3.25% Expected long-term rate of return on Plan assets 8.00% 8.00% 8.00%
The Plan's assets consist of money market accounts and investments in common stocks, bonds and mutual funds. In addition, the Company has a 401(k) plan for substantially all employees. Company contributions to the 401(k) plan were $79,474, $48,597 and $38,355 for the years ended December 31, 1999, 1998 and 1997, respectively. 11. OTHER INCOME Other income for the year ended December 31, 1997 represents the net gain on real estate transactions. 12. INCOME TAXES The income tax (benefit) provision for the years ended December 31 are as follows: 1999 1998 1997 ---- ---- ---- Current $ 50,000 $ 36,000 $ 431,000 Deferred (12,466,000) (15,483,000) (2,695,000) ------------ ------------ ------------ (Benefit) provision for income taxes $(12,416,000) $(15,447,000) $ (2,264,000) ============ ============ ============
1999 1998 1997 ---- ---- ---- Federal statutory income tax rate 34.0% 34.0% 34.0% State income taxes 1.7 2.1 5.3 Tax credits and other ( .5) ( .7) ( .3) ---- ---- ---- Effective rate 35.2% 35.4% 39.0% ==== ==== ====
F-18 45 The provision for deferred income taxes consists of the following:
1999 1998 1997 ---- ---- ---- Accruals and reserves $ (922,000) $(11,257,000) $ (448,000) Depreciation and amortization expense (880,000) 371,000 554,000 Net operating loss carryforward (10,575,000) (4,656,000) (2,425,000) Minimum tax credit carryforwards (199,000) (226,000) (376,000) Change in valuation allowance 110,000 285,000 ------------ ------------ ------------ Total $(12,466,000) $(15,483,000) $ (2,695,000) ============ ============ ============
The significant tax effected temporary differences comprising deferred taxes at December 31 are as follows:
1999 1998 ---- ---- Current: Net operating loss carryforwards $ (9,026,000) $ 1,380,000 Extraordinary loss 7,536,000 Accrued vacation and self insurance 356,000 489,000 Inventory and warranty reserves 1,119,000 1,004,000 Other 3,636,000 300,000 ------------ ------------ Total current deferred tax asset 2,621,000 3,173,000 ------------ ------------ Long-term: Excess of tax over book depreciation and amortization 19,000 (861,000) Net operating loss carryforwards 31,988,000 9,848,000 Minimum tax credit carryforward 963,000 764,000 Deferred start-up costs 313,000 313,000 Discontinued Operations -- 10,385,000 Other 285,000 101,000 ------------ ------------ Total long-term deferred tax asset 33,678,000 20,550,000 ------------ ------------ Net deferred tax asset $ 36,189,000 $ 23,723,000 ------------ ------------
The company increased its deferred tax valuation allowance $110,000 in 1999 and $285,000 in 1998 because certain tax credits and operating loss carry forwards are unlikely to be utilized. At December 31, 1999, the Company had approximately $82,700,000 of net operating loss carry forwards which expire through 2018. 13. COMMITMENTS AND CONTINGENCIES The Company leases certain equipment under capital lease agreements and certain facilities under noncancellable operating leases with various renewal options. Leased assets of $1,078,384 and $2,030,635 (net of accumulated depreciation of $772,236 and $1,144,166) are included in property and equipment as of December 31, 1999 and 1998, respectively. The following is a schedule of minimum rental payments due under the leases described above and for other operating leases for the years ending December 31: F-19 46
Capital Leases Operating Leases -------------- ---------------- 1999 $162,948 $ 1,369,304 2000 44,357 1,088,906 2001 35,409 825,109 2002 5,595 734,949 2003 661,977 Thereafter 6,085,693 -------- ----------- Total minimum lease payments 248,309 $10,765,938 =========== Less amounts representing interest (18,842) -------- Present value of net minimum lease payments $229,467 ========
Rent expense was $3,370,505, $2,530,932 and $1,889,660 for the years ended December 31, 1999, 1998 and 1997, respectively. 14. DISCONTINUED OPERATIONS In 1998, the Company's board of directors adopted a plan to dispose of its rail and mass transit seating operations. Accordingly, the operating results of these rail and mass transit operations, including a provision for estimated loss upon disposition, have been segregated from continuing operations and are reported as discontinued operations. The Company executed the sale of its rail and mass transit seating operation on August 31, 1999 under an Asset Purchase and Sale Agreement dated June 30, 1999, as amended and restated August 31, 1999 and subsequently on October 21, 1999, a Note Refinancing Agreement was executed. A former director of the Company wholly owned the acquiring company. Consideration received consisted of $100,000, assumption of approximately $4,700,000 in liabilities cash and a promissory note for $9,996,000 which matured on October 15, 1999. On October 21, 1999, the parties entered into the Note Refinancing Agreement which refinanced the note as two separate notes in the amount of $1,996,000 and $8,118,008 and reflects the capitalization of $118,008 of interest related to the original note into principal outstanding. The notes each carry an interest rate of 8 1/2% and mature on October 15, 2004. Interest is required to be paid quarterly beginning April 2000 on the $1,996,000 promissory note and semi-annually beginning April 2001 on the $8,118,008 promissory note. The negotiated interest rate on the notes did not properly reflect the risk and current market conditions. Therefore, the company has computed the net present value of the notes using a discount rate of 23%, which is the Company's determination of the market rate of interest and market value of the notes. Management believes this more properly reflects the risk related to the notes due to their subordinated nature. This resulted in a net present value discount of $6,750,000 assuming principal only payment at the end of the term. The notes are secured by the underlying assets and a Pledge and Proxy Security Agreement in the stock of the underlying company and stock of another company which is owned under common control of the acquirer and subordinated to short-term capital financing received subsequent to its disposal. Although a legal transfer of assets occurred at August 31, 1999, the sale could not be recognized as a divestiture for accounting purposes at the time because there was an absence of a significant investment in business by the buyer. As a result of losses by the rail and mass transit seating operation since the sale date and the uncertainty of the ultimate recovery of the entire principal and interest on a timely basis in accordance with the terms of the contract, a valuation allowance for the remaining balance has been recorded. This uncertainty is based on the operating losses sustained by the business subsequent to disposal, its inability to acquire adequate long-term financing for repayment of the notes under the terms of the contract, or obtain additional equity investment. While the contract between the parties remains fully enforceable, and the Company believes some recovery may occur, the Company can not accurately predict the precise timing and amount of the collection of principal and interest, accordingly the carrying value of the notes is zero. Any future payments of principal received will be accounted for under the cost recovery method of accounting as a component of discontinued operations. Under the Asset Purchase and Sale Agreement the Company has retained the liability for claims incurred through August 31, 1999 under its self funded health insurance plan and has agreed to indemnify the acquiring company for any customary warranty and litigation claims. An additional charge upon the final disposal of the rail and mass transit discontinued operation of $7,238,109, net of tax benefit of $3,898,000, was recorded in the year ended December 31, 1999. Revenues for the rail and mass transit operations were $8,247,294 for the eight months ended August 31, 1999, and $15,781,983 and $23,059,525 for the years ended 1998 and 1997, respectively. Interest expense has been allocated to discontinued operations based on the ratio of the discontinued operations' net assets to consolidated net assets. General corporate administrative expenses are not allocated to discontinued operations. F-20 47 15. RESTRUCTURING In December 1999, management of the Company, with the approval of the board of directors, committed itself to a plan of restructuring and recorded a charge to income of $18.3 million. The plan of restructuring included a refinancing of its outstanding bank line of credit and certain term notes (Note 7) and the divestiture of the Company's new airline seat manufacturing operation. The Company entered into an agreement to sell substantially all the assets of the airline seat manufacturing operation in December 1999 and completed the transaction in January 2000. The operating facility closed at that time terminating approximately 300 management and production employees. Total proceeds from the sale was approximately $12 million resulting in a loss on sale of $10.3 million. The remaining restructuring charge is comprised of severance costs of $1.6 million, $2.5 million related to the abandonment of leased operating facilities and equipment, $2.3 million related to the write down to net realizable value for inventory and fixed assets and $1.6 million in recognition of additional liabilities related primarily to outstanding purchase order commitments which were non-cancelable. The Company expects cash flow savings as a result of not having to fund continued operating losses to offset the cash required in implementing the restructuring plan within the first year. The airline seat manufacturing operation had sales of $41.9 million, $32.0 million and $ 27.7 million and operating losses of $25.4 million, $14.5 million and $3.3 million during the years ended 1999, 1998 and 1997, respectively. 16. OTHER The Company's research and development efforts arise from funded development contracts and proprietary research and development. Amounts arising from such efforts for the years ended December 31, were as follows:
1999 1998 1997 ---- ---- ---- Research and development expenses classified as general and administrative expenses $ 4,350,162 $ 3,383,082 $ 4,394,359 ============ ============= ============ Funded contracts: Revenues funded by customers $ 6,495,209 $ 8,916,222 $ 6,933,661 Research and development expenses classified as cost of such revenue (7,642,366) (10,066,340) (7,382,734) ------------ ------------- ------------ Funded contract deficiency $(1,147,157) $ (1,150,118) $ (449,073) ============ ============= ============
17. EXPORT SALES Export sales for the years ended December 31 were as follows:
1999 1998 1997 ---- ---- ---- Germany $37,420,006 $ 9,949,416 $ 8,879,713 United Kingdom 19,129,958 14,355,817 2,571,566 Ireland 8,061,186 1,045,417 2,279,659 Canada 3,614,972 1,958,905 3,414,059 Japan 1,713,915 925,578 1,167,752 Other 2,157,756 2,554,393 2,864,530 ----------- ----------- ----------- Total export sales $72,097,793 $30,789,526 $21,177,279 =========== =========== ===========
F-21 48 18. SEGMENT REPORTING The Company is a holding company for wholly owned subsidiaries which operate in two primary business segments. The Commercial Transportation Products segment includes operations which primarily manufacture seating systems for domestic and foreign passenger airlines and includes operations encompassing inflatable restraints and related technology for automobiles. The Government and Defense segment includes operations that design and deliver crash resistant components, energy absorbing devices, ballistic armor and composites principally in connection with branches of the United States armed forces procurement. The remaining segment, entitled Other, represents general corporate operations. For the years ended December 31, 1999, 1998 and 1997, inter-segment sales were insignificant and total intercompany sales of $4,736,052, $10,643,702 and $10,085,025, respectively, have been eliminated.
1999 ------------------------------------------------------------------------------ Commercial Government Transportation and Defense Products Other Total ----------- -------- ----- ----- Revenue: Contract revenue $ 46,871,663 $ 46,871,663 Product sales: Airline seat systems 51,313,904 51,313,904 Automotive safety systems 31,372,799 31,372,799 Other 716,712 $ 201,123 917,835 Technology sales and royalties 916,225 916,225 ------------- ------------- ------------- ------------- Total revenue $ 47,588,375 $ 83,602,928 $ 201,123 $ 131,392,426 ============= ============= ============= ============= Operating (loss) income $ 3,072,246 $ (18,295,659) $ (1,424,833) $ (16,648,246) Identifiable assets 32,871,455 29,377,329 45,091,307 107,340,101 Depreciation and amortization 1,258,134 3,323,170 1,226,259 5,807,563 Capital expenditures 1,521,939 1,262,161 16,276 2,800,376
Revenue from three major customers accounted for approximately 42% of total revenue for the year ended December 31, 1999. Contract and trade receivables from these customers accounted for approximately 31% of the total contract and trade receivables at December 31, 1999. The Commercial Transportation Products segment recognized revenue from Autoliv and Boeing Aircraft that accounted for approximately 23% and 9%, respectively, of total revenue. The Government and Defense segment recognized revenue from all branches of the United States armed forces that accounted for approximately 10% of total revenue for the year ended December 31, 1999. The Company anticipates that total sales to Autoliv may increase in the future, however, as a percentage of revenue may decrease as shipments to additional first-tier suppliers begin as new vehicle platforms begin in production. The Company does not expect to have significant sales to Boeing in the future because of the sale of its new airline seat manufacturing operation in January 2000 (Note 15). The Company has performed work for the United States armed forces since 1975 and has no reason to believe that there will be any change in these customer relationships. F-22 49 The Company's external sales based upon the customers country of origin and investment in long-lived assets by geographic area is as follows:
1999 -------------------------------- Long-Lived Revenues Assets -------- ------ United States $ 59,294,633 $ 48,781,071 Germany 37,420,006 United Kingdom 19,129,958 5,652,226 Ireland 8,061,186 Other foreign countries 7,486,643 ------------ ------------ Total $131,392,426 $ 54,433,297 ============ ============
1998 ------------------------------------------------------------------------------ Commercial Government Transportation and Defense Products Other Total ----------- -------- ----- ----- Revenue: Contract revenue $ 32,430,873 $ 4,778,566 $ 37,209,439 Product sales: Airline seat systems 30,932,898 30,932,898 Automotive safety systems 27,992,525 27,992,525 Other 3,445,639 $ 19,598 3,465,237 Technology sales and royalties 1,044,579 1,044,579 ------------- ------------- ------------- ------------- Total revenue $ 35,876,512 $ 64,748,568 $ 19,598 $ 100,644,678 ============= ============= ============= ============= Operating (loss) income $ 1,535,526 $ (5,701,323) $ (1,334,134) $ (5,499,931) Identifiable assets 30,544,223 47,811,797 32,623,061 110,979,081 Depreciation and amortization 1,251,642 2,486,144 908,745 4,646,531 Capital expenditures 889,119 5,171,569 128,037 6,188,725
Revenue from three major customers accounted for approximately 27% of total revenue for the year ended December 31, 1998. Contract and trade receivables from these customers accounted for approximately 44% of the total contract and trade receivables at December 31, 1998. The Government and Defense segment recognized revenue from all branches of the United States armed forces which accounted for approximately 12% of total revenue for the year ended December 31, 1998. F-23 50 The Company's external sales based upon the customers country of origin and investment in long-lived assets by geographic area is as follows:
1998 ----------------------------------- Revenues Long-Lived Assets -------- ----------------- United States $ 69,855,152 $ 40,824,266 United Kingdom 14,355,817 7,730,776 Germany 9,949,416 Other foreign countries 6,484,293 ------------ ------------ Total $100,644,678 $ 48,555,042 ============ ============
1997 ----------------------------------------------------------------------------- Commercial Government Transportation and Defense Products Other Total ----------- -------- ----- ----- Revenue: Contract revenue $ 29,104,203 $ 431,563 $ 29,535,766 Product sales: Airline seat systems 27,405,305 27,405,305 Automotive safety systems 8,879,713 8,879,713 Other 1,243,302 $ 18,321 1,261,623 Technology sales and royalties 280,049 280,049 ------------- ------------- ------------- ------------- Total revenue $ 30,347,505 $ 36,996,630 $ 18,321 $ 67,362,456 ============= ============= ============= ============= Operating (loss) income $ 696,485 $ (2,426,666) $ (1,386,354) $ (3,116,535) Identifiable assets 28,357,665 42,986,193 46,015,416 117,359,274 Depreciation and amortization 1,185,753 1,473,145 846,430 3,505,328 Capital expenditures 2,742,281 5,564,297 (325,997) 7,980,581
Revenue from three major customers accounted for approximately 55% of total revenue for the year ended December 31, 1997. Contract and trade receivables from these customers accounted for approximately 33% of the total contract and trade receivables at December 31, 1997. The Government and Defense segment recognized revenue from all branches of the United States armed forces which accounted for approximately 13% of total revenue for the year ended December 31, 1997. The Commercial Transportation Products segment recognized revenue from Continental Airlines that accounted for approximately 12% of total revenue for the year ended December 31, 1997. The Company anticipates that it will fulfill current delivery requirements to Continental Airlines in early 1999 and it will not represent as significant of a customer in 1998 and following years. The Company believes that in the ordinary course of its airline seating business, the programs with Continental Airlines will be replaced by programs with other customers. F-24 51 The Company's external sales based upon the customers country of origin and investment in long-lived assets by geographic area is as follows:
1997 --------------------------------- Revenues Long-Lived Assets -------- ----------------- United States $46,185,177 $37,532,376 Germany 8,879,713 Canada 3,414,059 United Kingdom 2,571,566 6,417,780 Other foreign countries 6,311,941 ----------- ----------- Total $67,362,456 $43,950,156 =========== ===========
F-25 52 19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
1999 ------------------------------------------------------------------------ First Second Third Fourth ----- ------ ----- ------ Revenue $ 31,928,262 $ 34,026,137 $ 33,169,131 $ 32,268,896 Cost of Revenue 23,414,109 25,161,644 23,468,135 30,940,241 ------------ ------------ ------------ ------------ Gross margin $ 8,514,153 $ 8,864,493 $ 9,700,996 $ 1,328,655 ============ ============ ============ ============ Net earnings (loss) from continuing operations $ 484,269 $ 715,729 $ 1,033,731 $(17,691,080) Discontinued Operations: Loss on disposal, net of tax $ (7,238,109) Extraordinary loss on early extinguishment of debt, net of tax $ (151,295) ------------ ------------ ------------ ------------ Net loss $ 484,269 $ 715,729 $ 1,033,731 $(25,080,484) Dividends on preferred stock $ (111,205) $ (93,834) $ (74,497) ------------ ------------ ------------ ------------ Earnings (loss) available for common shareholder $ 484,269 $ 604,524 $ 939,897 $(25,154,981) ============ ============ ============ ============ Net earnings per common share - basic and assuming dilution $ 0.05 $ 0.06 $ 0.09 $ (2.36)
1998 ------------------------------------------------------------------------ First Second Third Fourth ----- ------ ----- ------ Revenue $ 22,542,178 $ 25,739,419 $ 23,680,404 $ 28,682,677 Cost of Revenue 16,615,993 19,067,593 18,197,029 31,843,231 ------------ ------------ ------------ ------------ Gross margin $ 5,926,185 $ 6,671,826 $ 5,483,375 $ (3,160,554) ============ ============ ============ ============ Net (loss) earnings from continuing operations $ 228,679 $ 502,976 $ (559,150) $ (6,985,630) Discontinued Operations: (Loss) earnings from discontinued operations, net of tax $ (223,978) $ (1,932,410) $ (163,000) Estimated loss on disposal, net of tax $ (4,680,000) $(13,896,000) ------------ ------------ ------------ ------------ Net (loss) earnings $ 4,701 $ (6,109,434) $ (559,150) $(21,044,630) ============ ============ ============ ============ Net earnings per common share - basic and assuming dilution $ - $ (0.62) $ (0.06) $ (2.12)
F-26 53 EXHIBIT INDEX
NO. DESCRIPTION REFERENCE --- ----------- --------- 3.1 Articles of Incorporation of Simula, Inc., as amended and restated......... (2) 3.2 Bylaws of Simula, Inc., as amended and restated............................ (1) 4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior Subordinated Convertible Notes due May 1, 2004............ (4) 10.11 1992 Stock Option Plan, as amended effective September 15, 1998............ (8) 10.12 1992 Restricted Stock Plan................................................. (1) 10.21 1994 Stock Option Plan, as amended effective September 15, 1998............ (8) 10.26 Simula, Inc. Employee Stock Purchase Plan.................................. (2) 10.29 Form of Change of Control Agreements, as amended, between the Company and (6) Donald W. Townsend, Bradley P. Forst, and James A. Saunders................ 10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P. Forst, and James A. Saunders.................................... (7) 10.32 Employment Agreement between the Company and James C. Dodd dated March 2, (10) 1999....................................................................... 10.33 Change of Control Agreement between the Company and James C. Dodd dated March 2, 1999.............................................................. (10) 10.37 Simula, Inc. 1999 Incentive Stock Option Plan.............................. (11) 10.38 Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment Corporation, a wholly-owned subsidiary of the Company, dated August 31, 1999 and Note Refinancing Agreement dated October 21, 1999...... (12) 10.39 Promissory Note between the Company and Stanley P. Desjardins dated October 15, 1999 and Guarantees by Don and Nelda Townsend, James and Linda Saunders and Bradley and Teresa Forst dated November 2, 1999............... (13) *10.40 Asset Purchase Agreement for the sale of Airline Interiors, Inc., a wholly-owned subsidiary of the Company, dated December 24, 1999............ *10.41 Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30, 1999.......................................................... 10.42 Securities Purchase Agreement with Levine Leichtman Capital Partners II, L.P. dated December 31, 1999............................................. (14) *10.43 Employment Agreement between the Company and Joseph W. Coltman dated February 1, 2000........................................................... *10.44 Change of Control Agreement between the Company and Joseph W. Coltman dated February 1, 2000..................................................... *10.45 Promissory Note between the Company and Stanley P. Desjardins dated December 31, 1999, effective December 14, 1999............................. 18. Preference Letter re: change in accounting principles...................... (3) *21. Subsidiaries of the Company................................................ *23. Independent Auditors Consent............................................... +24. Powers of Attorney - Directors............................................. (5)(9) *27. Financial Data Schedule
- ---------- * Filed herewith. + Power of Attorney of S. Thomas Emerson filed herewith. All other Powers of Attorney filed as noted. 54 (1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under the Securities Act of 1933, effective April 13, 1992. (2) Filed with Definitive Proxy on May 15, 1996, for the Company's Annual Meeting of Shareholders held on June 20, 1996. (3) Filed with report on Form 10-Q/A for the quarter ended June 30, 1996. (4) Filed with Registration Statement on Form S-3/A, No. 333-13499, under the Securities Act of 1933, effective April 21, 1997. (5) Filed with report on Form 10-K for the year ended December 31, 1997. (6) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Change of Control Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in that Mr. Townsend is entitled to an amount equal to five (5) years base salary and benefits upon a change of control while Messrs. Forst and Saunders are entitled to an amount equal to four (4) years base salary and benefits upon a change of control. (7) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Employment Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in the following two respects: (i) the initial term of the agreement with Mr. Townsend is five (5) years while the initial term of the agreement with Messrs. Forst and Saunders is three (3) years; and (ii) the post-termination non-compete period with Mr. Townsend is thirty (30) months while it is eighteen (18) months with Messrs. Forst and Saunders. (8) Filed with report on Form 10-Q for the quarter ended September 30, 1998. (9) Filed with report on Form 10-K for the year ended December 31, 1998. (10) Filed with report on Form 10-Q for the quarter ended March 31, 1999. (11) Filed as Appendix A with Definitive Proxy on May 14, 1999, for the Company's Annual Meeting of Shareholders held on June 17, 1999. (12) Filed with report on Form 8-K, under the Securities Act of 1933, effective October 25, 1999. (13) Filed with report on Form 10-Q for the quarter ended September 30, 1999. (14) Filed with Schedule 13D, under the Securities Exchange Act of 1934, on January 10, 2000 effective December 31, 1999 by Levine Leichtman Capital Partners II, L.P. EX-10.40 2 EX-10.40 1 Exhibit 10.40a ASSET PURCHASE AGREEMENT AMONG AIRLINE INTERIORS, INC., SIMULA TRANSPORTATION EQUIPMENT CORPORATION, AND SIMULA, INC. AS SELLING PARTIES AND WEBER AIRCRAFT, INC. AS PURCHASER 2 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (the "Agreement") is executed as of this 24th day of December, 1999, by and among AIRLINE INTERIORS, INC., an Arizona corporation ("Seller"), SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation ("Simtec"), and SIMULA, INC., an Arizona corporation ("Simula"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Purchaser"), with reference to the facts set forth in the Preliminary Statements below. PRELIMINARY STATEMENTS A. Simula is the sole shareholder of Simtec, which is in turn the sole shareholder of Seller. B. Simula and Simtec may sometimes be hereafter collectively referred to as the "Shareholder." Seller and Shareholder may sometimes be hereafter collectively referred to as the "Selling Parties." C. Seller owns and operates a business involving the design, manufacture, and sale of new commercial aircraft passenger seats. Seller conducts this business in Poway, California. D. Seller desires to sell Purchaser certain assets used in such business of Seller. E. In connection with the subject transaction, Purchaser will buy certain assets of Seller and assume certain liabilities of Seller, all as more fully provided below in this Agreement. F. The parties are executing this Agreement in order to memorialize their understanding concerning said transaction. AGREEMENT NOW, THEREFORE, in consideration of the above Preliminary Statements and the mutual covenants of the parties set forth below in this Agreement, the parties hereby agree as follows: ARTICLE 0 KEY BUSINESS TERMS AND DEFINITIONS 0.1 KEY BUSINESS TERMS. (a) PURCHASE PRICE. The Purchase Price shall be a variable amount, consisting of the Cash Payment (as defined below) and the assumption of the Assumed Liabilities (as defined below). The amount of the Cash Payment shall be determined as provided in Section 1.2(d) below. 3 The amount of the Assumed Liabilities shall be determined effective as of the Closing, as provided in Section 0.3(m) below. (b) INITIAL DEPOSIT. $2,000,000. See Section 1.6 below. (c) EFFECTIVE DATE. December 31, 1999. See Section 1.10 below. (d) BALANCE SHEET CUT-OFF DATE. Seven (7) days before the Target Closing Date. See Section 0.3(tt) below. (e) TARGET CLOSING DATE. January 25, 2000. See Section 1.6(a) below. (f) CLOSING DEADLINE: February 29, 2000. See Section 0.3(o) below. (g) INDEMNITY CAP. $1,500,000. See Section 8.6(b) below. (h) INDEMNITY PERIOD. An eighteen (18) month period which is more precisely defined in Section 0.3(cc). See Section 8.6(b) below. (i) ACCOUNTING STANDARDS. Except as may be otherwise expressly provided in this Agreement, all financial and accounting information delivered to Purchaser by Selling Parties or to be prepared by Seller pursuant to this Agreement, including without limitation Seller's Financial Statements (as defined below) shall be prepared in accordance with generally accepted accounting principles ("GAAP") in the United States, consistently applied. It is agreed that it will not be necessary to reiterate this principle elsewhere in this Agreement. The only permitted exceptions to or deviations from GAAP are expressly noted below. 0.2 DEFINED TERMS GENERALLY. Terms used in this Agreement which begin with initial capital letters are defined terms which shall have the meanings ascribed to them in the Preliminary Statements above, in Section 0.3 below, or elsewhere in this Agreement 0.3 LISTING OF CERTAIN DEFINED TERMS. Terms defined in this Section 0.3 are as follows: (a) ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall have the meaning given it in Section 1.1(a) below. (b) AGREED INVENTORY VALUE. The term "Agreed Inventory Value" shall mean the value of the Included Inventory to be used in calculating Seller's Adjusted Net Worth. The initial amount of the Agreed Inventory Value shall be mutually agreed upon by Purchaser and Seller on or before the Balance Sheet Cut-Off Date. The final amount of the Agreed Inventory Value shall be determined as part of the Post-Closing Accounting Adjustments. The Agreed Inventory Value shall be determined in accordance with the procedures set forth in the Inventory Valuation Methodology attached hereto as Exhibit "B" and the Inventory Reserve Methodology attached hereto as Exhibit "C." The Agreed Inventory Value (net of any inventory reserve established pursuant to 2 4 Paragraph C of Exhibit "C") shall be inserted on line 6 of the Pre-Closing Balance Sheet; provided, however, that the aggregate amount of the inventory reserve computed pursuant to Paragraph 2 of Exhibit "C" shall not exceed thirty percent (30%). (c) AGREED OFFSETS. The term "Agreed Offsets" shall have the meaning given it in Section 0.3(nn)(3) below. (d) ASSETS. The term "Assets" shall mean all the assets of Seller, whether used in the Business or other businesses of Seller. The Assets consist of the Included Assets and the Excluded Assets. Purchaser is purchasing only the Included Assets. (e) ASSUMED LIABILITIES. (1) The term "Assumed Liabilities" shall mean the stated liabilities of Seller with respect to the Business to be assumed by Purchaser effective as of the Closing. As of the date of this Agreement, the nature and amount of the liabilities to be included in the Assumed Liabilities are not known. The parties will make a good faith estimate of the Assumed Liabilities as of the Balance Sheet Cut-Off Date. The Assumed Liabilities shall only consist of the specific contractual obligations of Seller to be assumed pursuant to the Assignment and Assumption Agreement, i.e., (i) certain Vendor Contracts, (ii) certain Customer Contracts, (iii) certain Equipment Leases (whether operating or capital leases), and (iv) such other obligations and commitments of Seller as shall be specified in the Assignment and Assumption Agreement at the Closing. The Assumed Liabilities will be listed on Schedule 0.3(e). Purchaser and Selling Parties shall amend this Agreement to reflect their agreement on the items to be listed on Schedule 0.3(e) before the Balance Sheet Cut-Off Date. (2) Subject to adjustments to reflect the Post-Closing Accounting Adjustments, the aggregate amount of the Assumed Liabilities shall not exceed the sum of the following items listed on the Pre-Closing Balance Sheet: (i) Seller's trade accounts payable (line 14 on the Pre-Closing Balance Sheet), (ii) certain of Seller's other accrued liabilities for items approved by Purchaser (line 15 on the Pre-Closing Balance Sheet); and (iii) certain inter-company trade payables (the "Simula Payables") in an amount not to exceed $2,432,000 owing by Seller to Simula Composites Corporation and Simula Technologies, Inc. for services and materials provided with respect to the Products (line 16 on the Pre-Closing Balance Sheet). The estimated amount (as of December 21, 1999) of each such balance sheet entry to be included as part of the Assumed Liabilities is shown on the Pro Forma Closing Date Balance Sheet attached hereto as Exhibit "A." (f) BALANCE SHEET CUT-OFF DATE. The term "Balance Sheet Cut-Off Date" shall mean the date as of which the Pre-Closing Balance Sheet shall be prepared. The Balance Sheet Cut-Off Date shall be as specified in Section 0.1(d) above. (g) BEST KNOWLEDGE OF SELLER'S RESPONSIBLE EMPLOYEES. The term "Best Knowledge of Seller's Responsible Employees" shall mean the knowledge of Seller's Responsible Employees after (1) due inquiry of Seller's employees, officers, and directors and (2) a review of Seller's books, records and files. 3 5 (h) Best Knowledge of Selling Parties. The term "Best Knowledge of Selling Parties" shall mean the Best Knowledge of Shareholder's Corporate Management and the Best Knowledge of Seller's Responsible Employees, collectively. (i) Best Knowledge of Shareholder's Corporate Management. The term "Best Knowledge of Shareholder's Corporate Management" shall mean the knowledge of the following officers of Simula: Donald W. Townsend, Bradley P. Forst, James A. Saunders, and James C. Dodd after due inquiry of Selling Parties' employees, officers and directors. (j) Books and Records. The term "Books and Records" shall have the meaning given it in Section 1.1(b) below. (k) Business. The term "Business" shall mean the business conducted by Seller in the Poway Facility involving the design, manufacture and sale of the Products. (l) Cash Payment. The term "Cash Payment" shall mean the cash portion of the Purchase Price payable to Seller by Purchaser for the Included Assets. The amount of the Cash Payment is a variable amount equal to (1) the sum of (i) Seller's Adjusted Net Worth determined effective as of the Closing and (ii) goodwill in the amount of Six Million Five Hundred Thousand Dollars ($6,500,000), (2) reduced by the outstanding principal balance of the Operating Loan as of the Closing. The amount of the Cash Payment shall be determined as of the Closing as provided in Section 1.2 below. To illustrate, assuming that Seller's Adjusted Net Worth as shown on the Pre-Closing Balance Sheet is Six Million Five Hundred Thousand Dollars ($6,500,000), and the principal balance of the Operating Loan is One Million Dollars ($1,000,000), the Cash Payment would be equal to Twelve Million Dollars ($12,000,000). It is understood that the actual amount of the Cash Payment payable at the Closing will be based on the amount of Seller's Adjusted Net Worth determined on the basis of the Pre-Closing Balance Sheet and will be adjusted by the Post-Closing Accounting Adjustments. (m) Closing. The term "Closing" shall have the meaning given it in Section 1.6(a) below. (n) Closing Date. The term "Closing Date" shall mean the date on which the Closing occurs. (o) Closing Deadline. The term "Closing Deadline" shall mean the last date by which the Closing may occur. The Closing Deadline may be extended by mutual agreement of the parties or as provided in this Agreement. As of the date of this Agreement, the Closing Deadline is as specified in Section 0.1(f) above. (p) Closing Documents. The term "Closing Documents" shall mean and include: (1) Assignment and Assumption Agreement (Exhibit "D"); (2) Assignment of Intellectual Property (Exhibit "J"); 4 6 (3) Bill of Sale (Exhibit "E"); (4) Consents to the assignment of the Customer's Contracts pursuant to Section 2.12 below; (5) Asset Acquisition Statement (IRS Form 8594); and (6) Patent License Agreement (Exhibit "H"). (q) Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. (r) Equipment Leases. The term "Equipment Leases"shall have the meaning given it in Section 1.1(d) below. (s) Escrow. The term "Escrow" shall mean the escrow to be opened with Escrowholder pursuant to Section 1.9 below for the purpose of holding the Initial Deposit and the Closing Documents pending the Closing. (t) Escrowholder. The term "Escrowholder" shall mean BankOne, N.A., Columbus, Ohio. (u) Excluded Assets. The term "Excluded Assets" shall mean those Assets of Seller which are not being purchased by Purchaser, as listed on Schedule 0.3(u). (v) Excluded liabilities. The term "Excluded Liabilities" shall mean all liabilities of Seller which are not being specifically assumed by Purchaser as part of the Assumed Liabilities. As noted above, as of the date of this Agreement, Purchaser does not yet know the exact nature or amount of the Excluded Liabilities. The Excluded Liabilities shall consist of those liabilities of Seller to be listed on Schedule 0.3(v) and all other liabilities of Seller (whether stated or unstated or whether arising out of the Business or otherwise) which are not part of the Assumed Liabilities to be listed on Schedule 0.3(e). Schedule 0.3(v) will be prepared at the same time as Schedule 0.3(e). (w) Funding agreement. The term "Funding Agreement" shall mean that certain Funding Agreement to be entered into by Purchaser and Selling Parties pursuant to Section 1.11 below. (x) Governmental Airworthiness Approvals. The term "Governmental Airworthiness Approvals" shall have the meaning given it in Section 1.1(e) below. (y) HSR Act. The term "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (z) Included Assets. The term "Included Assets"shall mean those Assets being 5 7 purchased by Purchaser pursuant to this Agreement. Generally, the Included Assets are listed in Sections 1.1(a)-(n) below. However, Purchaser reserves the right to purchase less than all of the following items listed in Section 1.1 as being part of the Included Assets: Software Licenses, Supplies, Tangible Personal Property and Vendor Contracts. At least five (5) business days before the Balance Sheet Cut-Off Date, Purchaser shall give Selling Parties written notice of the actual identification and/or quantity of such items which Purchaser desires to purchase. Upon receipt of such notice from Purchaser, Purchaser and Selling Parties shall amend the schedules to this Agreement that may be affected by Purchaser's decisions and adjust the Pre-Closing Balance Sheet appropriately. (aa) Included Inventories. The term "Included Inventories" shall have the meaning given it in Section 1.1(f) below. (bb) Indemnity Cap. The term "Indemnity Cap" shall mean the maximum amount which either Selling Parties or Purchaser is obligated to indemnify the other under Article 8 below. The amount of the Indemnity Cap is specified in Section 0.1(g) above. (cc) Indemnity Period. The term "Indemnity Period" shall mean an eighteen (18) month period beginning on the Closing Date and ending on the last day of the calendar month in which falls the 18th month anniversary of the Closing. See Section 8.6(b) below. (dd) Intellectual Property. The term "Intellectual Property"shall have the meaning given it in Section 1.1(g) below. (ee) Manufacturers' Warranties. The term "Manufacturers' Warranties"shall have the meaning given it in Section 1.1(h) below. (ff) Operating Loan. The term "Operating Loan" shall mean that certain loan to be made before the Closing by Purchaser to Seller pursuant to the Funding Agreement and as provided in Section 1.11 below. (gg) Post-Closing Accounting Adjustments. The term "Post-Closing Accounting Adjustments" shall have the meaning given it in Section 0.3(hh)(2) below. (hh) Pre-Closing Balance Sheet. (1) The term "Pre-Closing Balance Sheet" shall mean a preliminary balance sheet for the Business prepared as of the Balance Sheet Cut-Off Date by Seller and approved by Purchaser pursuant to Section 1.2(c) below. The Pre-Closing Balance Sheet shall be prepared in substantially the same format as the Pro Forma Closing Date Balance Sheet attached hereto as Exhibit "A." The parties shall agree on the methodology by which the items to be included as part of the Included Assets shall be reflected on the Pre-Closing Balance Sheet before the Balance Sheet Cut-Off Date. (2) It is understood that the Pre-Closing Balance Sheet may not accurately 6 8 reflect the actual financial condition of Seller on the Closing, because it will not be possible to make all necessary accounting entries and adjustments (the "Post-Closing Accounting Adjustments") to properly close Seller's accounting books effective as of the Closing until some time thereafter. Accordingly, it is agreed that the parties shall make the Post-Closing Accounting Adjustments as provided in Section 7.16 below. (ii) POST-CLOSING DOCUMENTS. The term "Post-Closing Documents" shall mean the Transition Support Agreement (Exhibit "I"), Non- Competition Agreement (Exhibit "F"), and any other documents which the parties may be required to execute after the Closing in order to fulfill their obligations under Article 7 below. (jj) POWAY FACILITY. The term "Poway Facility" shall mean the industrial building leased by Seller in which the Business is conducted. The Poway Facility is located at 12325 Kerran Street, Poway, California 92064. (kk) PRODUCTS. The term "Products" shall mean the new commercial aircraft passenger seats designed, manufactured and sold by Seller as part of the Business. The Products are identified by Seller as Model Nos. AI-1000 (economy-class seats) and AI-2000 (business-class and first-class seats). (ll) PRO FORMA CLOSING DATE BALANCE SHEET. The term "Pro Forma Closing Date Balance Sheet" shall mean the pro forma or specimen balance sheet for the Business which is attached hereto as Exhibit "A." The Pre-Closing Balance Sheet shall be prepared in substantially the same format as the Pro Forma Closing Date Balance Sheet. (mm) PURCHASE PRICE. The term "Purchase Price" shall mean the purchase price to be paid by Purchaser for the Included Assets. The Purchase Price is a variable amount, as specified in Section 0.1(a) above. The Purchase Price consists of the Cash Payment and the assumption of the Assumed Liabilities. See also Section 1.2 below. (nn) SELLER'S ADJUSTED NET WORTH. (1) The term "Seller's Adjusted Net Worth" shall be equal to the difference between: (i) the net aggregate value of the Included Assets and (ii) the sum of the Assumed Liabilities and the outstanding balance of the Operating Loan as of the Closing. The parties' initial estimate of Seller's Adjusted Net Worth shall be reflected on the Pre-Closing Balance Sheet. For purposes of computing Seller's Adjusted Net Worth, the net aggregate value of the Included Assets shall be equal to the difference between the Gross Asset Value and the Agreed Offsets. (2) The "Gross Asset Value" shall be equal to the sum of the following: (i) The Accounts Receivable, as shown on line 4 of the Pre-Closing Balance Sheet; (ii) An amount equal to the Agreed Inventory Value, as shown on 7 9 line 5 of the Pre-Closing Balance Sheet. (iii) The book value of the items historically included as part of Seller's "property and equipment" (but only to extent same are part of the Included Assets), as shown on line 8 of the Pre-Closing Balance Sheet but not less than $608,000; and (iv) The value of the items which have been historically included on Seller' balance sheets in the category of "other assets" (but only to the extent same are part of the Included Assets), as shown on line 10 of the Pre-Closing Balance Sheet. (3) The "Agreed Offsets" shall be equal to the sum of (i) a warranty offset in the amount of One Million Seven Hundred Twenty-One Thousand Nine Hundred Twelve Dollars ($1,721,912) and (ii) a certification offset in the amount of Five Hundred Sixty Thousand Dollars ($560,000). The procedures to be followed in computing the Agreed Inventory Value will reflect an inventory reserve computed in accordance with Exhibit "C." (oo) SELLER'S FINANCIAL STATEMENTS. The term "Seller's Financial Statements" shall have the meaning given it in Section 2.13 below. (pp) SELLER'S RESPONSIBLE EMPLOYEES. The term "Seller's Responsible Employees" shall mean and include: (1) the following employees of the Selling Parties: Donald Rutter, Jim Bucci, Daniel W. Henke, Gary Perschbacher, Thomas Nobles, and Mary Ann Brimhall, and (2) such other employees as may be identified by employment position in the various sections of Article 2 below in which this defined term is used. (qq) SHARED USE PATENT. The term "Shared Use Patent" shall mean that patent currently owned by Seller which is known as "16g load limiting technology" and which is identified as U.S. Patent No. 5,730,492 on Schedule 1.1(g). The Shared Use Patent is part of the Intellectual Property to be acquired by Purchaser as part of the Included Assets. (rr) SIMULA PAYABLES. The term "Simula Payables" shall have the meaning given it in Section 0.3(e)(2) above. (ss) TANGIBLE PERSONAL PROPERTY. The term " Tangible Personal Property" shall have the meaning given it in Section 1.1(l) below. (tt) TARGET CLOSING DATE. The term "Target Closing Date" shall mean the date on which the parties reasonably anticipate that the Closing will occur. The Target Closing Date shall be as specified in Section 0.1(e) above. (uu) TOOLING. The term "Tooling" shall have the meaning given it in Section 1.1(m) below. (vv) TRANSITION PERIOD. The term "Transition Period" shall mean a period of time following the Closing during which Purchaser will operate in the Poway Facility pursuant to the 8 10 Transition Support Agreement in order to prepare the Business for relocation to Purchaser's manufacturing facility in Gainesville, Texas. ARTICLE 1 SALE AND TRANSFER OF ASSETS 1.1 SALE OF INCLUDED ASSETS. Subject to all the terms and conditions of this Agreement, at the Closing Seller hereby agrees to sell, transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to purchase, all of Seller's right, title and interest in and to the Included Assets. The Included Assets shall consist of the following: (a) ACCOUNTS RECEIVABLE. All accounts receivable and other rights to receive payment (collectively, the "Accounts Receivable") under the Customer Contracts or otherwise, as may arise in the normal course of business and are in existence at the Closing and all deposits, prepayments, bonds, and refunds, as listed on Schedule 1.1(a); (b) BOOKS AND RECORDS. All documents, customer files, records, operating manuals, files and computer software which pertain to the Business, whether printed or in electronic format, including without limitation all procedure manuals, all vendor and supplier lists, customer lists, ledgers, journals and general operational business and financial books and records necessary to the uninterrupted operation of the Business (collectively, the "Books and Records"); (c) CUSTOMER CONTRACTS. All open written contracts and open written purchase orders (the "Customer Contracts"), with customers of Seller for the sale of the Products, including without limitation components thereof and related equipment or modifications and replacement parts, which are open or incomplete as of the Closing, including without limitation those contracts and purchase orders under which either (1) Seller has not completed performance of its production or delivery obligations to its customers (i.e. customer order backlog), or (2) such customers have not made payment in full to Seller in accordance with applicable contractual provisions, as listed on Schedule 1.1(c); (d) EQUIPMENT LEASES. The leases (the "Equipment Leases") for equipment used in the Business, but only those listed on Schedule 1.1(d); (e) GOVERNMENTAL AIRWORTHINESS APPROVALS. To the extent assignable or transferable, all approvals, authorizations, licenses, certificates, accreditations and registrations and other licenses or permits (collectively, the "Governmental Airworthiness Approvals") issued by governmental airworthiness authorities anywhere in the world with respect to the Products or in connection with the operation of the Business, including without limitation the permits, approvals and licenses listed on Schedule 1.1(e); (f) INCLUDED INVENTORIES. Subject to Section 2.10 below, all inventories (the "Included Inventories") of the Products, including without limitation raw materials and parts, work-in-process and finished goods, together with such additions and deletions thereto as may arise in the 9 11 ordinary course of business before the Closing, as listed on Schedule 1.1(f); (g) INTELLECTUAL PROPERTY. All intangible property (collectively, the "Intellectual Property") related to the Business, including without limitation the patents, copyrights, licenses, intellectual property, drawings, formulas and rights listed on Schedule 1.1(g); (h) MANUFACTURERS' WARRANTIES. All warranties (the "Manufacturers' Warranties") provided by any third-party manufacturers or vendors with respect to any components or parts used in manufacturing the Products; (i) OTHER ASSETS. Any other assets (the "Other Assets") of Seller utilized in the Business, wheresoever situated, excluding, however, the Excluded Assets (Schedule 0.3(u)); (j) SOFTWARE LICENSES. The software licenses, including appurtenant documentation and object and source code (the "Software Licenses"), for the computer software programs used by Seller in the Business listed on Schedule 1.1(j), it being agreed that Schedule 1.1(j) shall list only those items which Purchaser elects to purchase as provided above; (k) SUPPLIES. To the extent not part of the Included Inventories, the inventories of manufacturing supplies, office supplies and other disposables and consumables (the "Supplies") owned by Seller which are used in connection with the Business, together with such additions and deletions thereto as may arise in the ordinary course of business before the Closing as listed on Schedule 1.1(k), it being agreed that Schedule 1.1(k) shall list only those items which Purchaser elects to purchase as provided above; (l) TANGIBLE PERSONAL PROPERTY. Certain tangible personal property (the "Tangible Personal Property") used in connection with the Business, including without limitation appurtenant manufacturing equipment and machinery, furniture, computers, fixtures, office furnishings, and samples of the Products, as listed on Schedule 1.1(l), but only those items which Purchaser elects to purchase as provided above; (m) TOOLING. All tooling, fixtures, molds, jigs, assembly tools, and patterns and sample parts used to manufacture any parts or components of the Products (collectively, the "Tooling"), whether located in the Poway Facility or at the facilities of Seller's vendors, as listed on Schedule 1.1(m); and (n) VENDOR CONTRACTS. Those contracts and purchase orders (collectively, the "Vendor Contracts") issued by Seller to its vendors for parts, components, materials and other supplies used to manufacture the Products, as listed on Schedule 1.1(n), it being agreed that Schedule 1.1(n) shall list only those Vendor Contracts which Purchaser elects to acquire or assume. 1.2 PURCHASE TRANSACTION. (a) GENERAL. At the Closing, Purchaser shall purchase the Included Assets for the Purchase Price as preliminarily determined on the basis of the Pre-Closing Balance Sheet, which 10 12 shall be prepared as provided in the following provisions of this Section 1.2. See also Section 0.1(a) above. The Purchase Price is subject to adjustment to reflect the Post-Closing Accounting Adjustments, as provided in Section 0.3(hh) above. The Purchase Price shall be paid as provided in Section 1.6 below. (b) CERTAIN PRE-CLOSING ACTIONS. No less than five (5) business days before the Balance Sheet Cut-Off Date, Purchaser shall advise Selling Parties of those items of Seller's Assets which Purchaser desires to be included among the Included Assets pursuant to Section 1.1 above. In addition, Seller and Purchaser shall cooperate with one another in order to assist Purchaser in selecting the employees of Seller whom Purchaser desires to hire after the Closing. See Section 4.1(b) and 5.2(m) below. (c) DETERMINATION OF PRE-CLOSING BALANCE SHEET. At least three (3) business days before the Target Closing Date, Seller shall deliver to Purchaser the Pre-Closing Balance Sheet for the Business prepared on a basis consistent with: (1) Seller's Financial Statements and (2) Seller's accounting practices prior to the date of this Agreement. The Pre-Closing Balance Sheet shall be used to make a preliminary estimate of Seller's Adjusted Net Worth and the amount of the Assumed Liabilities as of the Closing. Purchaser shall have two (2) business days after receipt from Seller in which to review and approve the Pre-Closing Balance Sheet. If Purchaser disapproves of the Pre-Closing Balance Sheet as prepared by Seller, Purchaser shall send Seller a written notice to such effect. Purchaser's failure to timely object to the Pre-Closing Balance Sheet as prepared by Seller shall mean that Purchaser has approved of same. If Purchaser timely disapproves of Seller's Pre-Closing Balance Sheet, the parties shall meet and confer in order to agree on a mutually agreeable Pre-Closing Balance Sheet. If the parties are unable to agree on the Pre-Closing Balance Sheet within two (2) business days after the Purchaser sends its disapproval notice, the matter shall be promptly resolved by Selling Parties' accounting firm, Deloitte & Touche, LLP, and Purchaser's accounting firm, Ernst & Young, LLP, in a fair and impartial manner. Resolution of disagreements over the Pre-Closing Balance Sheet shall extend the Target Closing Date until such time as the matter is resolved. Extensions of the Target Closing Date pursuant to the preceding sentence shall extend the Closing Deadline for an equal amount of time. (d) AMOUNT OF CASH PAYMENT. The Cash Payment shall then be calculated as provided in Section 0.3(l) above. The Cash Payment shall be paid all in cash at the Closing, as more fully provided in Section 1.6 below. After the Post-Closing Accounting Adjustments are made, the amount of the Cash Payment shall be appropriately adjusted as provided in Section 0.3(hh) above. (e) AMOUNT OF ASSUMED LIABILITIES. The estimated amount of the Assumed Liabilities shall be as set forth on the Pre-Closing Balance Sheet approved by Seller and Purchaser pursuant to Section 1.2(c) above. The Assignment and Assumption Agreement (Exhibit "D") shall list the specific items to be included among the Assumed Liabilities, as set forth on Schedule 0.3(e). 1.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated by Purchaser and Seller on the basis of an allocation of the value of the Included Assets made by the parties and their respective accounting advisors, Ernst & Young, LLP and Deloitte & Touche, LLP. Seller shall cooperate in providing the information necessary for the completion and filing of IRS Form 8594, 11 13 Asset Acquisition Statement, under Section 1060 of the Code. The parties shall each deliver executed copies of said Form 8594 at the Closing. 1.4 ASSUMPTION OF ASSUMED LIABILITIES. Subject to all the terms and conditions of this Agreement, effective as of the Closing, Purchaser shall assume the Assumed Liabilities by executing and delivering to Seller the Assignment and Assumption Agreement substantially in the form of Exhibit "D" hereto. The Assumed Liabilities shall be listed on Schedule 0.3(e). Notwithstanding anything in this Agreement to the contrary, the Assumed Liabilities shall not include any of the Excluded Liabilities. 1.5 CALIFORNIA SALES TAX. Purchaser shall pay any and all state and local sales or transfer taxes that may be payable in connection with the sale of the Included Assets. 1.6 CLOSING MATTERS. (a) GENERAL. (1) The consummation (the "Closing") of the transactions contemplated in this Agreement shall occur at one time after all conditions to the Closing have been waived or satisfied. The Closing shall take place at the offices of Hillyer & Irwin in San Diego, California, or at such other place as Purchaser and Seller may agree upon in writing. (2) The parties anticipate that the Closing will occur on the Target Closing Date specified in Section 0.1(e) above. The Target Closing Date may be extended to such other date as may be mutually agreed upon by the parties or as provided in this Agreement. The Closing shall occur as soon as practical after the expiration of the applicable waiting period under the HSR Act, but not later than the Closing Deadline, as the same may be extended. See Article 5.2(s) below. Extensions of the Target Closing Date under applicable provisions of this Agreement shall also extend the Closing Deadline on a day-for-day basis, notwithstanding anything in this Agreement to the contrary. (b) DEPOSIT OF PURCHASER'S FUNDS. Promptly upon execution of this Agreement by both parties, Purchaser shall deposit the Initial Deposit into the Escrow. Between the date of the deposit of the Initial Deposit and the Effective Date, the Escrow shall remain a unilateral escrow for the exclusive benefit of Purchaser. After the Effective Date, the Escrow shall become a bilateral escrow for the joint benefit of Seller and Purchaser, subject to all the terms and conditions of this Agreement and the Funding Agreement. The Initial Deposit shall be disbursed to fund the Operating Loan pursuant to the Funding Agreement. See Section 1.11 below. The balance of the Initial Deposit shall be credited against the Cash Payment. Interest accrued on funds deposited into the Escrow while they are in Escrow shall accrue to the benefit of Purchaser. 12 14 (c) CLOSING PROCEDURES. At the Closing: (1) Seller shall deliver to Escrowholder the documents necessary to transfer title to the Included Assets, as more fully provided in Section 1.8 below; (2) Purchaser and Seller shall execute and deliver to Escrowholder the Closing Documents; (3) Purchaser shall deposit the unpaid balance of the Cash Payment into the Escrow by wire transfer of immediately available funds; and (4) Purchaser and Seller shall execute and deliver all other agreements and documents described in or contemplated in Articles 4, 5, and 6 below (to the extent not included in the Closing Documents) and all other documents reasonably agreed by the parties' respective legal counsel to be required to be delivered and/or executed at or prior to Closing in order to complete the transactions contemplated by this Agreement. 1.7 Bulk sale transfer notice. As a condition to the Closing, Purchaser shall give notice to Seller's creditors of the bulk transfer contemplated by this Agreement pursuant to Division 6 of the California Commercial Code. At least thirty (30) days before the Target Closing Date, Selling Parties will furnish Purchaser with the information necessary to prepare this notice, including all names and business addresses used by it within the last three (3) years and the location of all the Included Assets. 1.8 Instruments of Conveyance and Transfer. At the Closing, Seller shall deliver (a) the executed Closing Documents, (b) the executed Post-Closing Documents, (c) such additional documents as may be required to transfer title to the Intellectual Property to Purchaser, and (d) other good and sufficient endorsements, assignments and instruments of conveyance and transfer, and releases of liens, in form and substance reasonably satisfactory to Purchaser's legal counsel, may be required to vest in Purchaser title to the Included Assets free and clear of all liens and encumbrances. Simultaneously with such delivery, Seller shall take all such steps as may be reasonably required to put Purchaser in actual possession and complete operating control of the Included Assets and the Business. 1.9 Escrow Instructions. This Agreement shall constitute escrow instructions to Escrowholder. By signing the signature page of this Agreement in the space provided below, Escrowholder agrees to comply with said escrow instructions. Seller and Purchaser agree to execute such supplemental and/or general escrow instructions as Escrowholder may reasonably request. However, in the event of a conflict between this Agreement and such supplemental or general escrow instructions, this Agreement shall control. Selling Parties shall pay all costs of the Escrow. 1.10 Effective Date. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not be effective on its execution. Rather, it shall become effective as of the Effective Date specified in Section 0.1(c) above, provided Seller has delivered the executed Funding 13 15 Agreement to Purchaser and delivered to Escrowholder the executed Promissory Note and the executed Guaranty of Simula provided for under the Funding Agreement. Seller's delivery of the Funding Agreement, said Promissory Note and said Guaranty shall be a condition precedent to Purchaser's obligations under the Funding Agreement. 1.11 Funding Agreement. In order to assist Seller in meeting its obligations under Section 4.1(a) below concerning the conduct of the Business before the Closing, Purchaser has agreed to loan Seller up to One Million Dollars ($1,000,000) (the "Operating Loan") pursuant to a certain Funding Agreement (the "Funding Agreement") attached as Exhibit "G", to be entered into by Purchaser, Seller and Simula. The proceeds of the Operating Loan shall be used only for the following purposes: operating expenses of the Business incurred in the ordinary course of business and trade payables of Seller existing (as of December 31, 1999) with respect to the Business. The Operating Loan shall not be used to pay inter-company loans or purchase parts or materials to be used to manufacture the Products or fixed assets. The Funding Agreement shall contain more detailed provisions for the use of the proceeds of the Operating Loan. The Operating Loan shall be funded from the Initial Deposit in the Escrow. As a condition to the disbursement of the proceeds of the Operating Loan, Seller shall execute a Promissory Note and Simula shall execute a Guaranty, both in form and substance reasonably satisfactory to the parties. The loan proceeds shall be disbursed in increments. In order to draw down on the Operating Loan, Seller shall submit a loan draw request to Escrowholder and Purchaser describing in reasonable detail the purposes for which the draw request is being submitted. If Purchaser approves the loan draw request, Escrowholder shall issue a check payable to the order of the payee(s) specified in Seller's draw request. Interest shall accrue on the Operating Loan only as provided in the Funding Agreement. The Funding Agreement shall contain a more complete statement of the parties' understanding concerning the Operating Loan. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES Neither Seller nor Shareholder makes any representations or warranties concerning the subject transactions, except as expressly provided in this Article 2 or elsewhere in this Agreement. Neither Seller nor Shareholder makes any representations or warranties as to pro forma financial information and forecasts previously given Purchaser, except that they were prepared in good faith. In addition, except as expressly set forth in this Agreement, neither Seller nor Shareholder makes any warranty regarding the accuracy of the information in any marketing materials or business summaries provided by CIBC World Markets Corp., or in oral presentations (including the written materials used therein) by Selling Parties' management personnel and/or CIBC World Markets Corp., except that such materials and summaries were prepared in good faith. Subject to the foregoing, Seller and Shareholder hereby represent, warrant and agree that the following representations and warranties of the Selling Parties are true, accurate and complete as of the date of this Agreement and will be true, accurate and complete as of the Closing: 14 16 2.1 ORGANIZATION AND STANDING. Selling Parties are corporations duly organized, validly existing and in good standing under the laws of the State of Arizona and qualified to do business as foreign corporations in California and any other jurisdictions where such qualification is required. Selling Parties have all requisite power and authority to carry on their respective businesses as such businesses are now being conducted and to own the properties and assets each now owns. Selling Parties have heretofore delivered to Purchaser true, accurate and complete copies of their respective Articles of Incorporation and Bylaws, together, in each case, with all amendments thereto which have been adopted by requisite corporate action. 2.2 AUTHORITY FOR AGREEMENT. The respective Boards of Directors of Seller and Shareholder have taken all actions required by law, their respective Articles of Incorporation and Bylaws or otherwise to authorize the execution and delivery of this Agreement, on behalf of Seller and Shareholder, the performance by Seller and Shareholder of their respective obligations under this Agreement and the consummation of the transactions contemplated hereby. 2.3 OWNERSHIP OF SELLER. Simtec owns one hundred percent (100%) of the common stock of Seller. No other securities of Seller have been issued. Simula owns one hundred percent (100%) of the common stock of Simtec. No other securities of Simtec have been issued. 2.4 NO DEFAULTS OR VIOLATIONS. Except as disclosed on Schedule 2.4, neither the execution and delivery of this Agreement, nor the performance by Selling Parties of their obligations under this Agreement nor the consummation of the transactions contemplated hereby will: (a) violate any provision of their respective Articles of Incorporation or Bylaws, or any financing or other agreements by which any of them may be bound; (b) violate, or be in conflict with, or constitute a default under, or permit the termination of any of the Government Airworthiness Licenses or any customer agreement or contract by which Selling Parties are bound, or result in the creation or imposition of any lien upon any of the Included Assets; (d) require the agreement or consent of any third party; or (e) violate any material statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority to which Selling Parties or the Business may be subject. 2.5 TAXES. Selling Parties have filed all federal, state, employment, and local tax returns or information returns required to be filed by them. All of such returns have been prepared and filed in accordance with the applicable laws and regulations. Selling Parties have paid or accrued for all taxes and assessments (including, without limitation, income, excise, unemployment, worker's compensation, social security, occupation, franchise, property, sales and use taxes, import duties or charges, and all penalties and interest in respect thereof) due and payable. Selling Parties have not been audited by any taxing authority, nor are Selling Parties aware that any taxing authority contemplates such an audit, nor have Selling Parties signed any consent or extension agreement with any taxing authority. None of the Selling Parties is a party to any dispute about taxes of any nature in any jurisdiction. 2.6 LITIGATION. Except as disclosed on Schedule 2.6, as of the date of this Agreement, there is no investigation, audit, litigation, action, suit or proceeding of any nature pending, or, to the Best Knowledge of Selling Parties, threatened, against any Selling Party, their properties or any of their officers or directors before any court or governmental agency, which if adversely decided which 15 17 could: (a) result in any material liability for Purchaser; (b) result in any lien on any of the Included Assets; (c) have a material adverse effect on Selling Parties' ability to perform their obligations under this Agreement; or (d) have a materially adverse effect on the Business. For purposes of this Section 2.6, the term "Seller's Responsible Employees" shall include Bradley P. Forst, and Seller's quality assurance personnel and field service personnel. 2.7 COMPLIANCE WITH LAW AND REGULATIONS. To the Best Knowledge of Selling Parties, Selling Parties are in compliance with all material requirements of all applicable domestic and foreign laws, and all material requirements of all domestic and foreign governmental bodies or agencies having jurisdiction over the Selling Parties relating to the conduct of the Business and the use of the Products in the commercial aircraft industry. For purposes of this Section 2.7, the term "Seller's Responsible Employees" shall include Bradley P. Forst, and Seller's human resources personnel, manufacturing/production personnel, and quality assurance personnel. 2.8 GOVERNMENTAL APPROVALS. Schedule 1.1(e) lists all Governmental Airworthiness Approvals granted to Seller by the United States Federal Aviation Administration ("FAA") and the United Kingdom Civil Aviation Authority ("CAA") that are material and necessary to the conduct of the Business. Except as otherwise disclosed on Schedule 1.1(e), the conduct of the Business is in compliance in all material respects with the Governmental Airworthiness Approvals. In addition, Selling Parties have obtained, are subject only to and are in full compliance with the other material governmental licenses, permits, and other authorizations necessary to the conduct of the Business which are listed on Schedule 2.8. 2.9 TITLE TO AND CONDITION OF INCLUDED ASSETS. Seller does not own any real property. Except as set forth on Schedule 2.9, Seller has good and marketable title to all the Included Assets which are not leased, free and clear of liabilities, liens, security interests, defects, rights, charges and encumbrances. Seller has good and valid leasehold estates in the equipment leased under the Equipment Leases and is not in default under any of the Equipment Leases. All of the Tangible Personal Property, the Included Inventories and the Tooling are in good operating condition and repair, ordinary wear and tear excepted. All the Books and Records are located in the Poway Facility. 2.10 INVENTORIES. Schedule 1.1(f) is a true, accurate and complete listing of the Included Inventories (including work-in-process). Except for obsolete items that have been adequately reserved for, written off or written down to net realizable value in accordance with the methodology set forth on Exhibit "C" hereto, the Included Inventories: (a) are new and of a quality and condition that comply with the warranties for the Products customarily given to Seller's customers, (b) are of a commercially acceptable quality consistent with quality standards generally prevailing in the commercial aircraft industry, and (c) comply with Seller's design and manufacturing specifications for the Products. All items included as part of the Included Inventory are capable of being incorporated into the Products "as is" without rework or modification to meet current drawing requirements. As of the Closing, no seat cushions which are part of the Included Inventories will be older than ninety (90) days after the applicable original date of manufacture. The amount stated on line 5 of the Pro Forma Pre-Closing Balance Sheet as the Agreed Inventory Value for the Included Inventory does not include any amount for Seller's refurbishment inventory (which is not part of the Business) or engineering or testing costs incurred with respect to the Products. 16 18 2.11 OBLIGATIONS TO THIRD PARTIES OTHER THAN CUSTOMERS. (a) LISTING. Schedule 2.11 is a true, accurate and complete listing (effective as of the date hereof) of all material written agreements and commitments of Seller to third parties who are not customers of Seller, to which Seller is a party or by which it or any of the Included Assets may be bound. The information contained on Section 2.11 may be duplicative of information provided on other schedules of Seller. Such agreements and commitments include the following: (1) Notes, loans, credit agreements, mortgages, indentures, security agreements, and other agreements and instruments relating to the borrowing of money by, or the extension of credit to, Seller; (2) Credit agreements, guarantees, etc. executed by Shareholder for the benefit of Seller; (3) Written employment and consulting agreements; (4) Written sales agency, representative, broker or distributorship agreements; (5) Equipment and real property leases, including the Equipment Leases; (6) Open contracts, open purchase orders and other written agreements, orders or commitments for the purchase by Seller of raw materials, supplies or finished products exceeding Two Thousand Five Hundred Dollars ($2,500) in any one instance or Five Thousand Dollars ($5,000) in the aggregate to any single vendor; and (7) Open purchase orders and other written agreements, orders or commitments for the purchase by Seller of services exceeding Two Thousand Five Hundred Dollars ($2,500) in any one instance or Five Thousand Dollars ($5,000) in the aggregate to any single vendor. (b) DELIVERY OF DOCUMENTS. Prior to the execution of this Agreement, Seller shall has delivered to Purchaser true, accurate and complete copies of all of the agreements and commitments listed on Schedule 2.11, together with all amendments thereto. Except the agreements and commitments listed on Schedule 2.11, Seller does not now have (and at the Closing will not have) any written agreements or commitments, contingent or otherwise, (1) to incur any indebtedness in any amount, (2) for the purchase of supplies, services or other similar items in excess of Two Thousand Five Hundred Dollars ($2,500) in any one instance, or (3) for the purchase of any raw materials, supplies, equipment, or machinery in excess of Two Thousand Five Hundred Dollars ($2,500) in any one instance. 2.12 CUSTOMER CONTRACTS. Schedule 1.1(c) is a true, accurate and complete listing (effective as of the date of this Agreement) of: (a) all the Customer Contracts and (b) a true, accurate 17 19 and complete listing (by customer name) of all of Seller's current customer order backlog. Prior to the execution of this Agreement, Seller has delivered to Purchaser (to the extent not previously delivered to Purchaser) true, accurate and complete copies of all the Customer Contracts, together with all amendments thereto. The Customer Contracts are assumable by Purchaser according to their terms, it being agreed, however, that Purchaser shall be obligated to assume and Seller shall be obligated to assign only such Customer Contracts as may be specified in the Assignment and Assumption Agreement. Seller shall use commercially reasonable efforts to obtain consents for the assignment of the Customer Contracts, as may be reasonably requested by Purchaser. During the period between the date of this Agreement and the Closing, Seller shall not negotiate or execute any contracts for the sale or manufacture of the Products (or spare parts for the Products) without first obtaining Purchaser's prior written consent thereto, which consent shall not be unreasonably withheld or delayed. 2.13 FINANCIAL STATEMENTS. The unaudited financial statements of Seller for the years ended December 31, 1997 and December 31, 1998, and for the eleven (11) months ended November 30, 1999 listed on Schedule 2.13 (collectively, "Seller's Financial Statements") are true, accurate and complete in all material respects, and fairly present the financial condition of Seller as of the respective dates thereof and the results of the operations of Seller for the periods covered thereby. 2.14 ABSENCE OF MATERIAL CHANGES. Except as disclosed on Schedule 2.14, since the date of the last audited financial statement of Simula, there has not been any: (a) Sales of the Products by Seller except in the ordinary course of business; (b) Capital expenditure by Seller exceeding Five Thousand Dollars ($5,000) in any one instance or Ten Thousand Dollars ($10,000) in the aggregate; (c) Material adverse change in the financial condition, liabilities, assets, customer order backlog, production backlog, business, or prospects of Selling Parties; (d) Destruction, damage, or loss of any Included Asset (whether insured or uninsured) that would materially and adversely affect the financial condition, business, or prospects of Selling Parties; (e) Change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by Seller; (f) Revaluation by Seller of any of the Included Assets; (g) Increase in the salary or other compensation payable or to become payable by Seller to any of its respective officers, directors, employees, or declaration, payment, or obligation of any kind for payment, by Seller, of a bonus or other additional salary or compensation of any such person other than in the ordinary course of business; 18 20 (h) Sale or transfer of any of the Included Assets, except in the ordinary course of business; (i) Amendment or termination of any Customer Contract, except in the ordinary course of business; (j) Loan made by Seller to any person or entity or guaranty by Seller of any loan or indebtedness for the benefit of any third party; (k) Mortgage, pledge, or other encumbrance of any Included Asset by Seller; (l) Waiver or release of any right or claim of Seller relating to the Included Assets, except in the ordinary course of business; (m) To the Best Knowledge of Selling Parties, commencement or notice or threat of commencement of any civil or criminal litigation or any governmental proceeding against or investigation of any Selling Party or the affairs of any one of them, the adverse determination of which would materially affect the Business or the Included Assets; or (n) Claim of unlawful labor practice or employment discrimination action. 2.15 NO OTHER LIABILITIES OR ADVERSE CONDITIONS. Except for (a) the liabilities set forth on Seller's Financial Statements and on Schedules 1.1(c), 2.13, or 2.14, (b) liabilities incurred by Seller in the ordinary course of business since December 31, 1998, and (c) the Agreed Offsets, to the Best Knowledge of Selling Parties, Seller has no other liabilities of any nature, whether absolute, accrued, contingent or otherwise, or whether due or to become due, that are of a material nature, and, to the Best Knowledge of Selling Parties, there is no basis known to Selling Parties for the assertion against Seller of any such liability. All liabilities incurred since such date were incurred in the ordinary course of business and are usual and normal in amount, both individually and in the aggregate. For purposes of this Section 2.15, the term "Seller's Responsible Employees" shall include Seller's quality assurance and field service personnel. 2.16 ACCOUNTS RECEIVABLE. Schedule 1.1(a) is a true, accurate and complete listing of all the Accounts Receivable, with the balances due Seller as of the dates indicated. Except as expressly disclosed on Schedule 1.1(a), the Accounts Receivable are free of any liens or encumbrances and are collectible in full in the ordinary course of business. Except in the ordinary course of business, Seller has no obligation to accept returns from, or to extend credit terms to, its customers and has no policy, custom or practice of: (a) accepting returns or extending credit, whether or not legally obligated to do so, other than in the ordinary course of business, or (b) providing free or discounted goods to customers that would affect the valuation of the Accounts Receivable or Seller's customer order backlog. Except as may be disclosed on Schedules 2.9 and 1.1(a), no person has a security interest in the Accounts Receivable. Shareholder has agreed to guarantee the collectability of the Accounts Receivable pursuant to Section 7.3 below. Schedule 2.16 is a true, accurate and complete listing of any Accounts Receivable which Selling Parties presently deem to be uncollectable. 19 21 2.17 ACCOUNTS PAYABLE. Schedule 2.17 is a true, accurate and complete listing of all accounts payable of Seller and any collateral or security applicable to the indebtedness owed by Seller to its creditors is listed on Schedule 2.17. 2.18 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except as disclosed on Schedule 2.18 and as may be required under the HSR Act, no consent, approval or authorization of, or declaration, filing or registration with, any governmental, quasi-governmental, or regulatory authority is required to be made or obtained by Seller in connection with the execution, delivery and performance of this Agreement by Seller. Seller has filed all reports and returns required by federal, state or municipal authorities with respect to the Business prior to the date of this Agreement and has paid or will pay all sums that will become due with respect to such reports and returns before the Closing. 2.19 LABOR, EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFITS PLANS. (a) EMPLOYEE POLICIES AND BENEFITS. Schedule 2.19(a)(1) is a true, accurate and complete listing of all written personnel employment agreements, policies, procedures, practices and employee rules and manuals which are provided to employees, whether or not legally binding, including but not limited to policies with respect to hiring, compensation, disability, sick leave, vacation, leaves of absence, tuition reimbursement, relocation and termination. Schedule 2.19(a)(2) is a listing of all of Seller's group insurance, group hospitalization and other employee insurance benefit plans. (b) MATERIAL OBLIGATIONS TO EMPLOYEES. Except as set forth on Schedule 2.19(b), Seller has no material obligations, contingent or otherwise, written or oral, under any employment contract, collective bargaining agreement, pension or retirement plan, bonus plan, or other employee contract or non-terminable agreement, expressed or implied, except (1) normal salary or wage accruals, and (2) normal paid vacations and sick leave accruals. (c) PAYROLL ROSTER. The names and current aggregate annual compensation rates as of the date of this Agreement of each employee of the Seller receiving regular compensation, and designations as a union or non-union employee, are set forth in Schedule 2.19(c). (d) ACCRUED VACATION AND SICK DAY ALLOWANCES. The amount of currently accrued vacation and sick day allowances due to each employee on the date hereof is listed by employee name on Schedule 2.19(d). (e) INS FORM I-9. Seller has obtained Form I-9 from all of its employees and Seller is in compliance with all rules and regulations of the U.S. Immigration and Naturalization Service. (f) ERISA COMPLIANCE. The Selling Parties have complied with all material state and federal regulations for each of their respective employee benefit plans, including without limitation ERISA. 20 22 EXHIBIT 10.40a (g) SEVERANCE PAY. Seller has no agreements to pay severance pay to any of its officers or employees except as set forth on Schedule 2.19(g). Seller shall pay any severance payments that may be due employees of Seller as listed on Schedule 2.19(g). See Section 7.9 below for a discussion of severance pay obligations to be assumed by Purchaser under the Transition Support Agreement. 2.20 ENVIRONMENTAL MATTERS. (a) COMPLIANCE WITH ENVIRONMENTAL LAWS. To the Best Knowledge of Selling Parties, Seller is in compliance with all material rules and regulations (and applicable standards and requirements) of the United States Environmental Protection Agency (the "EPA") and the agencies and authorities of the City of Poway, the County of San Diego, and the State of California, and any other political subdivision in which it conducts the Business, which have jurisdiction over environmental matters. Selling Parties have received no notice of, and, to their best knowledge, has not during its operation of the Business made any act or omission that would result in: (1) potential responsibility or liability for environmental damage, or (2) any suit, claim, action or proceeding before any court, governmental agency or board or other forum, nor is any such action threatened by any person or entity or any basis for such suit, claim, action or proceeding, for (x) noncompliance by Seller with any environmental law, rule or regulation, (y) personal injury, wrongful death or other conduct relating to materials, commodities or products used, sold, transferred, disposed or manufactured by Seller, or (z) relating to the presence in or release or discharge into the environment by Seller of any toxic or hazardous material, substance, or waste generated by Seller whether or not occurring at or on a site owned, leased or operated by Seller. (b) PHASE 1 ESA. Purchaser is not assuming any environmental liability of Seller. A Phase I environmental site assessment of the Poway Facility will be conducted before the Closing to establish the condition of the Poway Facility as of that date and as a baseline for this representation of Seller. The cost of such environmental site assessment will be split evenly between Purchaser and Seller. For purposes of this Section 2.20, the term "Seller's Responsible Employees" shall include Seller's personnel charged with responsibilities for compliance with environmental laws. 2.21 INSURANCE. Prior to the execution of this Agreement, Seller has provided Purchaser with a true, accurate and complete listing of and a summary description (including premiums, exclusions, deductible and coinsurance amounts, broker and carrier) of all insurance policies maintained by Seller, or by Shareholder on Seller's behalf. Such policies are in full force and effect, all premiums due thereon have been paid, and Selling Parties have complied in all material respects with the provisions of such policies. Except as disclosed on Schedule 2.21, there are no claims pending under any of such insurance policies. Selling Parties have sufficient insurance in force in general to properly conduct the Business. 2.22 PRODUCT WARRANTIES. Schedule 2.22(a) is a true, accurate and complete copy of the standard warranty of Seller that has at all times been applicable to the Products from the date the first unit of the Products was sold. Except disclosed on Schedule 2.22(b), Seller has received no notice of any product liability or service warranty claims with respect to its entire installed base of 21 23 the Products, whether reserved for or not. Seller and Purchaser have agreed on the amount of a warranty offset to be shown on line 15 of Seller's Pre-Closing Balance Sheet. This warranty offset will be an adequate and reasonable estimate of Seller's present and future, known and unknown, warranty obligations for all Products delivered by Seller through the Closing. There are no unique or special warranty arrangements with any customers of Seller which are at variance with Seller's standard warranty, except as disclosed on Schedule 2.22(c). To the Best Knowledge of Selling Parties, a warranty offset for all existing warranty and service bulletin issues for Seller's existing base of airline passenger seats in the amount of One Million Seven Hundred Twenty-One Thousand Nine Hundred Twelve Dollars ($1,721,912) is adequate. Purchaser believes that the correct amount of the warranty offset is at least One Million Dollars ($1,000,000) greater than this amount. However, in consideration of Selling Parties' agreement, under Section 7.8 below, that Selling Parties shall be liable under Article 8 to indemnify Purchaser if actual warranty claims for the Products exceed the foregoing warranty offset amount, Purchaser has agreed to use the foregoing warranty offset amount in establishing the Agreed Offsets, without prejudice to Purchaser's right to seek to collect a greater amount if the actual amount of warranty claims exceeds the above warranty offset during the Indemnity Period. 2.23 BANKS. Schedule 2.23 is a true, accurate, and complete listing, as of the date hereof, of (a) each bank or other financial institution, trust company or brokerage firm at which Seller has an account or safe deposit box, and (b) the account number and the names of all persons authorized to draw thereon, have access thereto or transact business therewith. 2.24 TRADE NAMES, LOGOS, TRADEMARKS, AND COPYRIGHTS. Schedule 2.24 is a true, accurate and complete listing of all trade names, logos, trademarks, service marks, and copyrights and their registrations (collectively, the "Seller's Trade Names") owned by Selling Parties which are used in the Business, or to which they have any rights or licenses, together with a brief description of each. Selling Parties have no knowledge of any infringement or alleged infringement by others of Seller's Trade Names. In the conduct of the Business, Selling Parties have not infringed, and are not now infringing, on any trade name, logo, trademark, service mark, or copyright belonging to any other person, firm, or corporation. Except as set forth in Schedule 2.24, Selling Parties are not parties to any license, agreement, or arrangement, whether as licensor, licensee, franchiser, franchisee, or otherwise, with respect to any copyrights or any trademarks, service marks, trade names, logos, or applications for them used in the Business. Selling Parties own or hold adequate licenses or other rights to use all trademarks, logos, service marks, trade names, and copyrights necessary for the Business as it is now conducted by Seller (including Seller's Trade Names). Such use by Selling Parties does not, and will not, violate any rights of others. Selling Parties have the right to sell or assign to Purchaser all of Seller's Trade Names. 2.25 PATENT AND PATENT RIGHTS. (a) LISTING. Schedule 2.25 is a true, accurate and complete listing of all patents, patent applications, inventions, industrial models, processes, designs, and applications for patents used in the Business which are owned by the Selling Parties or in which they have any rights, licenses, or immunities (collectively, "Seller's Patents"). Except as set forth on Schedule 2.25, no Selling Party is a party to any license, agreement, or arrangement, whether as licensee, licensor, or otherwise, 22 24 with respect to any patent, patent application, invention, design, model, process, trade secret, or formula used in the Business. Seller's Patents are valid and in full force and effect and are not subject to any taxes, maintenance fees, or actions falling due within ninety (90) days after the Closing Date. (b) NO INFRINGEMENT. There have been no interference actions or other judicial, arbitration, or other adversary proceedings concerning the patents or applications for Seller's Patents. The manufacture, use, or sale of the inventions, models, designs, and systems covered by Seller's Patents, to the Best Knowledge of Selling Parties, does not violate or infringe on any patent or any proprietary or personal right of any person, firm, or corporation; and to the Best Knowledge of Selling Parties, no Selling Party has infringed or is now infringing on any patent or other right belonging to any person, firm, or corporation. (c) RIGHT TO TRANSFER. The Selling Parties have the right and authority to use and to transfer to Purchaser such inventions, trade secrets, processes, models, designs, and formulas as are necessary to enable them to continue to conduct all phases of the Business in the manner presently conducted by Seller and, to the Best Knowledge of Selling Parties, such use will not violate any patent or other rights of others. For purposes of this Section 2.25, the term "Seller's Responsible Employees" shall include Seller's engineering and design personnel. (d) NO FOREIGN PATENTS. Seller owns no patents or patent applications with respect to the Products which have been registered or are in the process of being registered in any jurisdiction outside the United States. 2.26 NO SALES AGENTS. Except as disclosed on Schedule 2.26, Seller has no contracts, agreements or understandings (oral or written) with any sales agents or representatives employed by or on behalf of Seller for the purpose of selling or facilitating the sale of the Products. Schedule 2.26 lists any fees or commissions that may become due or payable after the Closing to past or present officers, employers, agents or employees of Seller for sales of the Products initiated by Seller, whether completed before or after the Closing. Seller has adequately accrued on Seller's Financial Statements (and will accrue on the Pre-Closing Balance Sheet) an amount sufficient to pay any such fees or commissions in full. 2.27 SOFTWARE LICENSES. Schedule 1.1(j) is a true, accurate and complete listing of the Software Licenses. To the Best Knowledge of Selling Parties, Seller is not in breach of any of the Software Licenses, and the number of copies of software programs used by Seller is consistent with the applicable Software Licenses. For purposes of this Section 2.27, the term "Seller's Responsible Employees" shall include Seller's MIS personnel. 2.28 Y2K COMPLIANCE. Seller's material office automation, engineering and information technology systems are currently in "Year 2000" compliance. 2.29 CUSTOMERS AND SALES. Schedule 2.29 is a true, correct and complete listing of all customers of Seller, together with summaries of the sales made to each such customer during the most recent fiscal year of Seller. Except as indicated in Schedule 2.29, no Selling Party has received any notice that any of these customers intends to cease doing business with Seller or materially alter 23 25 the amount of the business they are presently doing with Seller, although no affirmative commitments have been made by any customers to continue any particular amount of business. 2.30 INTEREST IN CUSTOMERS, SUPPLIERS, AND COMPETITORS. Except as set forth in Schedule 2.30, none of the Selling Parties and no officer, director, or employee of the Selling Parties, nor any spouse or child of any of them, has any material, direct or indirect, interest in any competitor, supplier, or customer of the Selling Parties or in any person from whom or to whom any Selling Party leases any real or personal property, or in any other person with whom any Selling Party is doing business. 2.31 NO LIABILITY FOR EXCLUDED LIABILITIES. Selling Parties shall be solely responsible for paying or otherwise satisfying the Excluded Liabilities and Purchaser shall have no liability of any kind, contingent or otherwise, with respect to the Excluded Liabilities. 2.32 FCPA COMPLIANCE. To the Best Knowledge of Selling Parties, Seller is in full compliance with the Foreign Corrupt Practices Act of 1977 ("FCPA"), as amended (15 U.S.C. Section 78dd-2, et seq.) and no agent, representative or employee of Seller has engaged in conduct which would constitute a violation of the FCPA. For purposes of this Section 2.32, the term "Seller's Responsible Employees" shall include Seller's sales and marketing personnel. 2.33 [INTENTIONALLY DELETED] 2.34 [INTENTIONALLY DELETED] 2.35 [INTENTIONALLY DELETED] 2.36 SERVICE BULLETINS. Schedule 2.36 contains a true, accurate and complete listing of all service bulletins issued by Seller with respect to any of the Products, whether related to a warranty claim or a customer order. 2.37 OWNERSHIP OF TOOLING. Schedule 1.1(m) is a true, accurate and complete listing of all the Tooling. The Tooling is located as specified on Schedule 1.1(m). Seller is the sole owner of all of the Tooling, regardless of where the Tooling may be located and no vendor of Seller has any right, title or interest in any of the Tooling. 2.38 CUSTOMER ORDER BACKLOG. Schedule 2.38 is a true, accurate and complete listing of the customer order backlog for the Products, listing all customer orders for which Products have not been either manufactured or shipped. All of Seller's customer order backlog is supported or backed by a Customer Contract. 2.39 [INTENTIONALLY DELETED] 2.40 BID AND PROPOSAL LIST. Within two (2) business days after the date of execution of this Agreement, Seller shall deliver to Purchaser a copy of all outstanding bids and proposals made by Seller for sale of the Products to customers. Upon delivery of such list to Purchaser, Selling 24 26 Parties shall be deemed to be representing and warranting that such list is true, accurate and complete. 2.41 NO SIDE AGREEMENTS. No past or present officer, director, employee, representative or agent of Selling Parties has made any promise or commitment (oral or written) to grant any customer of Seller any concession or consideration for orders for the Products which is not expressly set forth in Schedule 1.1(c). ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Selling Parties as of the Closing as follows: 3.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated. Purchaser has full power and authority to carry on its business as now conducted and as contemplated by this Agreement. 3.2 AUTHORITY FOR AGREEMENT. The execution and delivery of this Agreement and the performance by Purchaser of its obligations under this Agreement have been authorized in accordance with applicable corporate requirements and no further corporate authorization is necessary on the part of Purchaser. 3.3 NO THIRD PARTY CONSENTS. No consent, approval, or authorization of, or declaration, filing, or registration with, any federal or state governmental or regulatory authority in the United States or France is required to be made or obtained by Purchaser in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement, except for the filing under the HSR Act. 3.4 NO DEFAULTS; NO VIOLATIONS. Except as disclosed on Schedule 3.4, neither the execution and delivery of this Agreement, nor the performance by the Purchaser of its obligations hereunder, nor the consummation of the transactions contemplated hereby will: (a) violate any provision of its Articles of Incorporation or Bylaws or any financing or other agreements to which Purchaser is a party; (b) require the agreement or consent of any other party; or (c) violate any material statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority to which Purchaser is subject; except in the case of clauses (b) and (c) for violations, conflicts or defaults which individually or in the aggregate would not materially adversely hinder or impair the consummation of the transactions contemplated hereby. 3.5 ACKNOWLEDGMENT BY PURCHASER. Purchaser acknowledges that neither Seller nor Shareholder makes any representations or warranties except as expressly provided in Article 2 above. 25 27 ARTICLE 4 CERTAIN COVENANTS OF THE PARTIES 4.1 COVENANTS OF SELLING PARTIES. (a) CONDUCT OF BUSINESS. Except as may be otherwise contemplated by this Agreement or required by any of the documents listed in the schedules attached to this Agreement or except as Purchaser may otherwise consent to in writing (which consent shall not be unreasonably withheld or delayed), from the date of this Agreement and through the Closing, Selling Parties shall (1) in all material respects, operate the Business only in the ordinary course; (2) use reasonable efforts to preserve intact Seller's business organization; (3) maintain the Included Assets in good operating condition and repair to enable Seller to conduct the Business in all material respects in the manner in which the Business is currently conducted except for maintenance required by reason of fire, flood, earthquake, or other acts of God; (4) continue, or cause to be continued, all material existing insurance policies (or comparable insurance) in full force and effect; (5) not increase the rate or terms of compensation payable or to become payable by Seller to its directors, officers, or key employees, and not increase the rate or terms of any bonus, pension, or other employee benefit plan covering any of their respective directors, officers, or key employees, except in each case increases occurring in the ordinary course of business in accordance with its customary practices (including normal periodic performance reviews and related compensation and benefits increases); and (6) use its reasonable efforts to preserve its relationships with its lenders, suppliers, customers, licensors and licensees, and others having material business dealings with Seller such that the Business will not be materially impaired. (b) COOPERATION WITH PURCHASER. Commencing on the date of execution of this Agreement and continuing through the Closing, Selling Parties shall grant Purchaser complete and unrestricted access to the Poway Facility, Seller's Books and Records, and Seller's employees, including without limitation those employees of Seller who fall within the definition of "Seller's Responsible Employees." In the course of meeting with Seller's employees, Purchaser shall have the right to interview and identify employees whom Purchaser would be interested in hiring to work for Purchaser after the Closing, either on a temporary or permanent basis. Purchaser agrees to exercise its rights hereunder in a reasonable manner so as to minimize disruption of Seller's ongoing business operations. Selling Parties shall use commercially reasonable efforts to obtain requisite waivers and consents of private parties and governmental agencies to the assignment of Customer Contracts and/or Governmental Airworthiness Approvals from Seller to Purchaser. 4.2 COVENANT OF PURCHASER. From the date of this Agreement and through the Closing, Purchaser shall use its best efforts, and shall cooperate with Seller, to secure all necessary consents, approvals, authorizations, exemptions, and waivers from third parties, including without limitation the FAA and the CAA, as may be required in order to enable Purchaser to effect the transactions contemplated in this Agreement. Purchaser will use its best efforts to cause the consummation of such transactions in accordance with the terms and conditions of this Agreement. 26 28 4.3 JOINT COVENANTS OF SELLER AND PURCHASER. (a) LISTING. As promptly as practicable after execution of this Agreement, Seller and Purchaser shall cooperate with each other to allow Purchaser and its representatives access to Seller's facilities, as follows: (1) Purchaser and Seller shall cooperate with Ernst & Young, LLP in conducting a physical inventory count of the Included Inventory and valuation of same in accordance with Exhibits "B" and "C" which will be used for the Pre-Closing Balance Sheet and such other reasonable procedures as may be mutually agreed on; provided, however, that the inventory count and valuation will be done without unreasonable interference with the Business and without material disruption to the ongoing conduct of the Business; (2) Purchaser shall review organizational charts, personnel records, and conduct interviews with personnel as reasonably necessary to make its determination with respect to the employees whom it shall retain during the Transition Period and/or thereafter; and (3) Selling Parties shall assist Purchaser in ascertaining the location of all the Included Assets and verifying the quantity and condition of same. (b) PUBLIC DISCLOSURE. Except as may otherwise be required by applicable securities laws of the United States and the Republic of France, Selling Parties and Purchaser shall first consult with each other and cooperate with one another before issuing any press releases or otherwise making public statements with respect to the transactions contemplated by this Agreement. In recognition of the Effective Date and to allow Purchaser the opportunity for access to the Poway Facility for transition planning and employee communications, the parties agree that no public disclosure of this Agreement or the transactions contemplated herein shall occur until after the close of the NYSE on January 3, 2000. (c) HSR ACT FILING. As promptly as practicable after the execution of this Agreement, Seller and Purchaser shall cooperate with each other to prepare all filings required to be made by them to consummate the transactions contemplated by this Agreement, specifically including all filings required under the HSR Act. ARTICLE 5 CONDITIONS TO CLOSING IN FAVOR OF PURCHASER 5.1 GENERAL. The obligation of Purchaser under this Agreement to purchase the Included Assets and to assume the Assumed Liabilities is subject to the satisfaction, at or before the Closing, of all the conditions set out below in this Article 5. Purchaser may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Purchaser of any of Purchaser's other rights or remedies, at law or in equity, if Selling Parties are in default of any of their representations, warranties, or covenants contained in this Agreement. Any obligations of Purchaser to consummate the purchase of the 27 29 Included Assets and the assumption of the Assumed Liabilities are subject to the fulfillment (or the written waiver thereof by Purchaser) of each of the conditions precedent set forth below in this Article 5. 5.2 PURCHASER'S CONDITIONS PRECEDENT TO CLOSING. The conditions precedent to the Closing in favor of Purchaser shall consist of the following: (a) PERFORMANCE BY SELLING PARTIES. Each of the representations and warranties of Selling Parties contained in Article 2 shall be true, accurate and complete in all material respects. In addition, Selling Parties shall, on or before the Closing, have substantially performed all of their covenants and obligations under this Agreement which by the terms of this Agreement are to be performed on or before the Closing. All actions necessary to authorize the execution, delivery, and performance of this Agreement by Selling Parties and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the board of directors of Selling Parties. Selling Parties shall have obtained all authorizations, consents, and permits of others required to permit the consummation of the transactions contemplated in this Agreement. No temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the transactions contemplated by this Agreement shall have been issued by any federal or state court and remain in effect. (b) COMPLIANCE WITH THIS AGREEMENT. Selling Parties shall have substantially performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by them prior to or at the Closing. (c) APPROVAL OF DOCUMENTS. All actions, proceedings, instruments, and documents required to carry out this Agreement or any undertaking incidental thereto, and all other related legal matters shall be reasonably satisfactory in form and substance to Purchaser and its legal counsel. (d) NO LEGAL PROCEEDINGS. No action, suit, or other proceeding shall be instituted or, so far as may be known to Purchaser or Selling Parties, threatened before any court or governmental agency in which it is sought to: (1) restrain, prohibit, invalidate, or set aside (in whole or in part) the transactions contemplated by this Agreement; (2) affect the right of Purchaser to operate or control the Business or to use and enjoy the Included Assets after the Closing; or (3) obtain damages or other relief in connection with the consummation of the transactions contemplated by this Agreement which, if decided adversely, could reasonably have a material adverse affect on Purchaser. (e) DELIVERY OF DOCUMENTS. Selling Parties shall have delivered to Escrowholder, on or before the Target Closing Date, the Closing Documents and such other documents and instruments as may be required to be delivered by Seller in order to complete the transactions contemplated in this Agreement. (f) NO MATERIAL ADVERSE CHANGE. During the period between the date of this Agreement and the Closing, Seller will have not sustained any material adverse change in its financial 28 30 condition, liabilities, assets, customer order backlog, production backlog, business or prospects that would materially affect Purchaser's ability to conduct the Business after the Closing, it being agreed that no such change shall be deemed to be a "material adverse change" if the parties agree, through mutually good faith negotiations, that it can be corrected by an adjustment of the Purchase Price so as to maintain the parties' respective economic expectations under this Agreement. (g) CONSENTS AND APPROVALS. The lessors under the Equipment Leases, the parties (other than Selling Parties) to any contract or agreement to which Seller is a party or subject, and any governmental or regulatory body or authority having jurisdiction over Selling Parties to the extent that their consent or approval is required or necessary under the pertinent lease, contract, agreement, or other document or instrument, or under applicable orders, laws, rules, or regulations, for the consummation of the transactions contemplated hereby in the manner herein provided, shall have granted such consent or approval; provided, however, that (1) FAA or CAA approval of or authorization for the transfer of any FAA or CAA certificate or license and (2) consents of Seller's customers under the Customer Contracts shall not be a condition to the Closing. (h) APPROVAL OF COUNSEL; CORPORATE MATTERS. All actions, proceedings, resolutions, instruments, and documents required to carry out this Agreement or incidental hereto and all other related legal matters shall have been approved by Hillyer & Irwin, counsel for Purchaser, in the exercise of their reasonable judgment. Selling Parties shall also have delivered to Purchaser such other documents, instruments, certifications, and further assurances as such counsel may reasonably require. (i) CORPORATE APPROVAL. The execution and delivery of this Agreement by Selling Parties, and the performance of its covenants and obligations under it, will have been duly authorized by all necessary corporate action, and Purchaser will have received copies of all resolutions pertaining to that authorization, certified by the corporate secretary of each Selling Party. (j) ASSIGNMENT OF INTELLECTUAL PROPERTY. The Selling Parties shall assign all of the Intellectual Property to Purchaser. The patent assignment instruments shall be in form satisfactory to legal counsel for Purchaser. (k) PURCHASE PRICE ALLOCATION. The parties shall have agreed on the allocation of the Purchase Price as provided in Section 1.3 above. (l) NON-COMPETITION AGREEMENT. Each of the Selling Parties shall have executed and delivered to Purchaser a Non-Competition Agreement substantially in the form of Exhibit "F" hereto. Such agreement shall provide, among other things, that Selling Parties shall be prohibited from soliciting employees of Purchaser to work for Selling Parties. (m) WARN ACT NOTICE. Promptly after the Effective Date, Seller shall grant Purchaser unrestricted access to Seller's Poway Facility in order to enable Purchaser to identify before the Balance Sheet Cut-Off Date - the employees of Seller whom Purchaser desires to hire after the Closing. See also Section 4.1(b). After Seller receives Purchaser's list of employees whom Purchaser desires to hire, Seller shall give its employees appropriate notices under the WARN Act 29 31 at least one (1) business day before the Closing pursuant to Section 7.10 below. (n) PHASE I ESA. Seller has previously provided Purchaser with a copy of a Phase I environmental site assessment for the Poway Facility which shall be reasonably satisfactory to Purchaser in form and substance. (o) GOVERNMENTAL APPROVALS. To the extent required, Purchaser shall have received confirmation that all necessary licenses, certifications, permits and approvals relating to the Business issued by federal, state and local governmental units (excluding the Governmental Airworthiness Approvals) listed on Schedule 1.1(e)) shall be in effect after the Closing so as to permit Purchaser to continue to operate in the Poway Facility during the Transition Period. (p) UCC SEARCH. Seller shall have delivered to Purchaser at least five (5) business days before the Target Closing Date a UCC lien search report prepared by a recognized reporting service with respect to liens, judgment liens, tax liens, and other mortgages and encumbrances that may be filed against any of the Included Assets. Such report shall be dated no more than thirty (30) days preceding the Target Closing Date. Seller shall, at the Closing, arrange for the application of the Cash Payment to the payment of any secured creditors of Seller and deliver to Purchaser in connection therewith copies of payoff demands from all such secured creditors. Selling Parties shall furnish evidence to Purchaser that all such liens are promptly released after the Closing. In the event that Purchaser ascertains that any such lien remains unpaid more than thirty (30) days after the Closing, Purchaser shall have the right to either demand that any Selling Party discharge the subject lien or pay the amount required to discharge the subject lien. The Selling Parties shall be jointly and severally liable to reimburse any amount so paid by Purchaser without regard to the Indemnity Cap. (q) BID AND PROPOSAL LIST. Seller has previously delivered to Purchaser the bid and proposal list for sales of the Products pursuant to Section 2.40 above. (r) OPINION OF LEGAL COUNSEL. Purchaser shall have been furnished with the opinion of legal counsel to Simula, dated as of the Closing, to the effect that: (1) Selling Parties are corporations duly organized, validly existing, and in good standing under the laws of the State of Arizona with full power and authority to enter into and perform their obligations under this Agreement, and are qualified to do business in any jurisdiction where such qualification is required. (2) Selling Parties have full corporate power and authority to enter into and consummate the transactions contemplated by this Agreement. (3) All proceedings required to be taken on the part of Selling Parties to authorize them to enter into, carry out and fully comply with the provisions of this Agreement, the Closing Documents, and any other documents to be executed by any Selling Party, and to transfer and deliver the Included Assets, have been duly, validly and properly taken. The execution, delivery and performance of the foregoing agreements of Selling Parties do not violate any provision of the 30 32 Articles of Incorporation or Bylaws of Selling Parties, or any agreements to which any Selling Party is bound. (4) This Agreement and all other agreements to be executed by the Selling Parties pursuant hereto are valid and legally binding obligations of Selling Parties, enforceable in accordance with their respective terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws relating to or affecting the rights and remedies of creditors generally and by the general principles of equity. (5) Except as to the matters described in Schedule 2.6, no Selling Party is a party to any pending or, to the knowledge of such counsel, threatened litigation, proceedings, claim or governmental investigation or audit which may either (1) materially adversely affect the Included Assets or impair the Purchaser's right or ability to operate the Business in the manner presently conducted by Seller, or (2) seek to prevent, restrain or interfere with the performance by Selling Parties of this Agreement. (s) HSR ACT CLEARANCE. The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or shall have otherwise terminated without the U.S. Department of Justice or the Federal Trade Commission taking any action to delay or block the transactions contemplated in this Agreement. (t) PRODUCT LIABILITY INSURANCE TAIL COVERAGE. Seller shall have provided Purchase with evidence that Seller has purchased the product liability tail coverage specified in Section 7.7 below. ARTICLE 6 CONDITIONS TO CLOSING IN FAVOR OF SELLING PARTIES Selling Parties' obligation to consummate this Agreement and the transactions contemplated by this Agreement is subject to the fulfillment (or the written waiver thereof by Selling Parties) of each of the following conditions precedent on or before the Closing, as specified below: 6.1 PERFORMANCE BY PURCHASER. Each of the representations and warranties of Purchaser contained in Article 3 shall be true and correct. Purchaser shall, on or before the Closing, have performed all of its obligations under this Agreement and the Funding Agreement, which by the terms of this Agreement are to be performed on or before the Closing. All actions necessary to authorize the execution, delivery, and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken by Purchaser. Purchaser shall have obtained all authorizations, consents, and permits of others required to permit the consummation of the transactions contemplated in this Agreement. 6.2 ABSENCE OF LITIGATION. No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transactions contemplated in this Agreement or to its consummation, will have been instituted or threatened on or before the Closing. No governmental 31 33 authority shall have asserted that the transactions contemplated herein constitute a violation of law or give rise to liability on the part of any Selling Party. 6.3 APPROVAL OF PROCEEDINGS. All actions, proceedings, instruments, and documents required to carry out this Agreement and all other related legal matters shall be reasonably satisfactory in substance to Seller and its counsel. 6.4 DELIVERY OF DOCUMENTS AND FUNDS. Purchaser shall have delivered to Escrowholder on or before the Closing all documents to be signed by both Purchaser and any Selling Party, including without limitation the Closing Documents and the Cash Payment. 6.5 TERMINATION OF HSR ACT WAITING PERIOD. The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or shall have otherwise terminated without the U.S. Department of Justice and the Federal Trade Commission taking action to delay or block the transactions contemplated by this Agreement. 6.6 LICENSE BACK OF PATENT RIGHTS. Purchaser and Shareholder shall have entered into a Patent License Agreement substantially in the form of Exhibit H hereto pursuant to which Shareholder and its affiliates are granted a license to utilize the 16G load limiting technology covered by the Shared Use Patent in accordance with the Patent License Agreement. 6.7 TRANSITION SUPPORT AGREEMENT. Purchaser and Seller shall have entered into the Transition Support Agreement. The Transition Support Agreement shall be substantially in the form of Exhibit I attached hereto. ARTICLE 7 POST CLOSING MATTERS 7.1 POST-CLOSING COVENANTS OF SELLING PARTIES. All the obligations to be performed by Selling Parties after the Closing pursuant to this Article 7 shall be deemed to be covenants for which Selling Parties shall be jointly and severally liable. 7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the parties contained in this Agreement shall survive the Closing and continue in full force and effect until the last day of the Indemnity Period. 7.3 COLLECTION OF ACCOUNTS RECEIVABLE. (a) GUARANTY OF PAYMENT. Selling Parties shall guarantee to Purchaser that the unpaid balance of all Accounts Receivable of Seller acquired by Purchaser at the Closing will be paid within a collection period (the "Collection Period") of one hundred eighty (180) days following the Closing. Purchaser shall diligently exercise customary efforts to collect the Accounts Receivable in the ordinary course of business during the Collection Period. It is agreed that if Purchaser reduces or compromises any Account Receivable without a reasonable basis for doing so which arises out of 32 34 (1) problems with respect to Products sold by Seller or (2) errors in invoice preparation, Selling Parties shall have no obligation to pay the amount of the reduction or compromise granted by Purchaser. Any Accounts Receivable still outstanding at the end of the Collection Period shall be assigned by Purchaser back to Seller and, within ten (10) business days thereafter, Selling Parties shall pay to Purchaser the amount of the unpaid Accounts Receivable, in cash, less (1) the amount of the reserve for doubtful accounts reflected in the books of Seller on the Closing, and (2) the amount of any Accounts Receivable written off as uncollectible by Seller before the Closing but actually paid to Purchaser during the Collection Period. If more than one invoice is outstanding for any customer, the "first-in, first out" principle will be applied in determining the invoice to which a payment relates, unless the payment by its terms specifies or clearly indicates the invoice to which it relates. (b) PURCHASER'S COLLECTION EFFORTS. Purchaser will exercise prompt and diligent efforts to collect all unpaid Accounts Receivable before the end of the Collection Period; provided, however, that Purchaser will not be required to initiate legal proceedings for this purpose. Purchaser will cause all unpaid Accounts Receivable to be assigned to Seller, without recourse, at the time of Seller's payment of such Accounts Receivable. (c) CUSTOMER NOTICES. If requested by Purchaser, Seller shall cooperate with Purchaser in installing so-called "lock boxes" at all of Purchaser's banks so as to insure that payments made by customer of Seller after the Closing are paid to Purchaser and not Seller. After the Closing, Purchaser and Seller shall send a joint notice (signed by both Seller and Purchaser) to all of Seller's customers and vendors informing them of the Closing and instructing them about procedures to be followed in making payment to Purchaser and/or submitting invoices for payment by Purchaser. Such notices shall be prepared by Purchaser and sent out according to a schedule established by Purchaser. 7.4 DISCHARGE OF BUSINESS OBLIGATIONS. From and after the Closing, except for the Assumed Liabilities, Seller shall pay and discharge, in accordance with its past practices but not less than on a timely basis, all of its obligations and liabilities in respect of the Business, its operations or the Included Assets and the properties used in the business, including without limitation any liabilities or obligations to employees, trade creditors, and customers of the Business. 7.5 MAINTENANCE OF BOOKS AND RECORDS. Selling Parties shall preserve until the third (3rd) anniversary of the Closing Date all records possessed or to be possessed by any such party relating to any of the Included Assets, the Assumed Liabilities, or the Business prior to the Closing. After the Closing, where there is a legitimate purpose, such party shall provide the other parties with access, upon prior reasonable written request specifying the need therefor, during regular business hours, to (a) the officers and employees of such party and (b) the books of account and records of such party, but, in each case, only to the extent relating to the Included Assets, the Assumed Liabilities, or the Business prior to the Closing, and the other parties and their representatives shall have the right to make copies of such books and records; provided, however, that the foregoing right of access shall not be exercisable in such a manner as to interfere unreasonably with the normal business operations of such party. Such records may nevertheless be destroyed by a party if such party sends to the other parties written notice of its intent to destroy records, specifying with particularity the contents of the records to be destroyed. Such records may then be destroyed after the thirtieth (30th) day after such notice is given unless another party objects to the destruction in 33 35 which case the party seeking to destroy the records shall deliver such records to the objecting party. After the Closing, Selling Parties and Purchaser shall have the right to copy any financial records of Seller. 7.6 TITLE TRANSFER DOCUMENTS. From and after the Closing, Selling Parties shall promptly refer all inquiries with respect to ownership of the Included Assets to Purchaser. In addition, Selling Parties shall execute such documents and financing statements as Purchaser may request from time to time to evidence transfer of the Included Assets to Purchaser, including any necessary assignments of financing statements affecting the Included Assets. 7.7 POST-CLOSING PRODUCT LIABILITY CLAIMS. In the event that a product liability claim is asserted after the Closing with respect to Products which were sold by Seller at any time before the Closing, Seller shall be solely responsible for paying all such claims and Seller shall defend, indemnify, and hold Purchaser harmless from any loss, cost, or expense, including without limitation, reasonable attorneys' fees, arising out of any such claims. All other product liability claims shall be the sole responsibility of Purchaser and Purchaser shall indemnify Selling Parties from all losses, costs or expenses associated therewith in accordance with Article 8. Seller shall purchase an aviation products liability "tail coverage" insurance policy with limits of liability of at least Two Million Dollars ($2,000,000) per occurrence and a term of at least four (4) years unless such policy is duplicative of the insurance in force on the date hereof for all relevant time periods during which Seller has been selling the Products. 7.8 PRODUCT WARRANTY CLAIMS. Seller and Purchaser have agreed on an offset for warranty claims for Products sold by Seller before the Closing in the amount of $1,721,912. Notwithstanding anything in this Agreement to the contrary, it is agreed that if the actual amount of warranty claims experienced by Purchaser after the Closing during the Indemnity Period exceeds the foregoing offset amount, Purchaser shall be entitled to assert claims against Selling Parties for any such excess warranty claims, subject, however, to the Indemnity Cap. Accordingly, Purchaser shall be solely responsible for handling (a) all unresolved warranty claims asserted by purchasers of the Products before the Closing, and (b) all warranty claims for Products sold by Seller which are asserted after the Closing. In addition, Purchaser shall be solely responsible for all warranty claims asserted after the Closing with respect to Products sold by Purchaser. Purchaser shall administer warranty claims for the Products in a business-like manner in accordance with Purchaser's usual business practices without unwarranted concessions or compromises for marketing purposes. 7.9 TRANSITION SUPPORT AGREEMENT. After the Closing during the Transition Period, Selling Parties shall assist Purchaser in the orderly transition of Seller's manufacturing operations from Poway, California to the Weber Aircraft, Inc. facility in Gainesville, Texas. All of the respective obligations of the parties during this period shall be set out in a Transition Support Agreement substantially in the form of Exhibit I. Among other things, the Transition Support Agreement will provide that: (a) Purchaser shall be obligated to pay the lease obligations of Seller under Seller's lease for the Poway Facility for a period of six (6) months on the same terms and conditions stated in Seller's lease for such facility; 34 36 (b) Selling Parties shall provide necessary corporate support for all computer systems used in the Business during the Transition Period; (c) Seller shall grant Purchaser a license to use such Assets which are to be utilized by Purchaser during the Transition Period, but which are not part of the Included Assets; (d) Effective as of the Closing, Purchaser shall become the employer of the individuals whom it elects to hire. Seller will cooperate in connection with the necessary transition of employees from its payroll to the payroll and benefits systems of Purchaser. (e) Actual out of pocket facilities costs, and other costs, incurred by Seller on behalf of Purchaser during the Transition Period will be paid by Purchaser without mark up. However, property, plant, equipment, tooling, and leasehold improvements used by Purchaser during the Transition Period but not purchased as part of the Included Assets shall be leased by Purchaser from Seller for a rental factor equal to one hundred fifteen percent (115%) of the applicable depreciation cost during the Transition Period. This 115% rental factor shall not be applied to the rent or other amounts due under Seller's lease for the Poway Facility. 7.10 WARN ACT COMPLIANCE. Seller shall be responsible for giving all notices required under the WARN Act (29 U.S.C. Section 2101, et seq.) to be given to Seller's employees and for paying all costs that may arise thereunder. The WARN Act notice shall be given not earlier than before the Closing. See Section 5.1(m). Any costs that may be imposed on Purchaser with respect to Seller's failure to comply with the WARN Act compliance shall not be subject to the Indemnity Cap. 7.11 PAYMENTS TO SELLER'S EMPLOYEES. In addition to payments due under the WARN Act, Seller shall be solely responsible for paying all amounts due its terminated employees under applicable law, including without limitation severance pay, accruals for paid time off, etc., and Purchaser shall have no responsibility therefor. 7.12 NO BANKRUPTCY FILING. Selling Parties agree that the transactions contemplated in this Agreement do not constitute a "fraudulent transfer" within the meaning of 11 U.S.C. Section 548. Shareholder covenants and agrees that it will not cause or permit Seller to file a voluntary or involuntary bankruptcy petition at any time during the twelve (12) months following the Closing. 7.13 UNDISCLOSED COMMITMENTS TO SELLER'S CUSTOMERS. In the event that after the Closing any customer of Seller asserts a claim against Purchaser for a price or other concession relating to the sale of the Products (or spare parts therefor) made before the Closing which Selling Parties failed to disclose to Purchaser before the Closing, Selling Parties shall promptly resolve the claim, at Selling Parties' sole cost and expense, in a commercially reasonable manner so that the valuable business relationship between Purchaser and its customer is maintained. Selling Parties shall promptly notify Purchaser in writing of any such claim that may be asserted by a customer of Seller. A final determination (through arbitration or litigation) that any such claim by a customer of Seller is valid shall constitute a breach of Seller's representations and warranties. 35 37 7.14 PAYMENT OF SIMULA PAYABLES. Purchaser shall pay the Simula Payables within two (2) business days after the date on which the Post-Closing Accounting Adjustments are made, subject, however, to Purchaser's offset rights under Section 0.3(hh)(2) above. 7.15 CHANGE OF SELLER'S CORPORATE NAME. Purchaser shall have the exclusive right to use the mark "Airline Interiors" after the Closing. Accordingly, Seller agrees to change its corporate name no later than thirty (30) days after the Closing. 7.16 POST-CLOSING ACCOUNTING ADJUSTMENTS. (a) GENERAL. The parties shall determine the amount of the Post-Closing Accounting Adjustments in good faith in a manner consistent with this Agreement as soon as practicable after the Closing, but no later than thirty (30) days thereafter. After Purchaser and Selling Parties agree on the amount of the Post-Closing Accounting Adjustments, they will promptly make appropriate adjustments to the Cash Payment. If it is determined that Purchaser owes Seller additional funds, Purchaser shall pay the amount due within ten (10) days after the Post-Closing Accounting Adjustments are agreed on. If it is determined that Seller owes Purchaser funds because of an overpayment of the Cash Payment, Purchaser shall be entitled to offset the amount so owed Purchaser by Seller against the amount of the Simula Payables. If the amount of the Post-Closing Accounting Adjustments that may be due Purchaser exceeds the amount of the Simula Payables, Simula shall pay any amount due Purchaser within five (5) business days after demand. (b) INVENTORY COUNT ADJUSTMENTS. As part of the Post-Closing Accounting Adjustments, the parties shall verify the parts count used in determining the valuation of the Included Inventory as shown on the Pre-Closing Balance Sheet in the manner provided in this Section 7.16(b). Immediately after the Closing, Purchaser shall conduct a physical inventory (utilizing procedures approved by Purchaser's outside auditors) of the Included Inventory in order to verify that the inventory count used to fix the value of same on the Pre-Closing Balance Sheet was accurate as of the Closing. Selling Parties' representatives may participate in this post-Closing inventory count. If it is later determined that the assumed physical inventory count used to prepare the Pre-Closing Balance Sheet was in error, an appropriate adjustment shall be made to the Cash Payment at the time specified in Section 7.16(a), it being agreed that Purchaser shall have, if applicable, the same right of offset against the Simula Payables under this Section 7.16(b) as provided in the last sentence of said section. ARTICLE 8 INDEMNIFICATION 8.1 INDEMNIFICATION BY SELLING PARTIES. The indemnification obligations of Selling Parties under this Section 8.1 are in addition to any other indemnification obligations which they may have under other provisions of this Agreement. Selling Parties agree to defend, indemnify, and hold harmless Purchaser (and companies owned by or under common control of Zodiac, S.A.), and their respective employees, representatives, officers, directors, and agents from and against any costs, losses, damages, liabilities, and expenses except as disclosed in this Agreement and the schedules 36 38 hereto (including without limitation interest, penalties, and reasonable attorneys' fees) of any kind or nature whatsoever which may be sustained or suffered by Purchaser by reason of any claim, action, or proceeding asserted or instituted and based upon or involving (a) a breach of any representation, warranty, covenant, or obligation of Seller or Shareholder in this Agreement or in any schedule, exhibit, certificate, or financial statement delivered hereunder or in connection herewith, or (b) the Excluded Liabilities (collectively, the "Indemnifiable Claims"). 8.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to defend, indemnify, and hold harmless Selling Parties, their respective employees, representatives, officers, directors, and agents from and against any costs, damages, liabilities, losses, lawsuits, and expenses (including without limitation interest, penalties, and reasonable attorneys' fees) of any kind or nature whatsoever which may be sustained or suffered by Selling Parties by reason of any claim, action, or proceeding asserted or instituted and based upon or involving (a) a breach of any representation, warranty, covenant, or obligation made by Purchaser in this Agreement or (b) the Assumed Liabilities. 8.3 NOTICE; DEFENSE OF CLAIMS. This Section 8.3 shall relate to the handling of Indemnifiable Claims. Purchaser shall have the right to control the defense of any third-party claim, action, or proceeding filed against it with respect to any Indemnifiable Claims. Purchaser shall give prompt written notice to the Selling Parties of each Indemnifiable Claim. Such notice shall be given no later than thirty (30) days after Purchaser receives notice or actual knowledge thereof, and shall specify the amount and nature of the claim, and of any other relevant information. Selling Parties shall have the right to participate at their own expense in the defense of any such matter or its settlement, if, in the opinion of Purchaser, the Business acquired by Purchaser would not be impaired thereby. Purchaser may authorize the Selling Parties, if they so desire, to take over the defense of such matter so long as such defense is handled in a diligent and expeditious manner. Purchaser and Selling Parties agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such claim, action, or proceeding. 8.4 PAYMENT OF INDEMNIFIABLE CLAIMS. Indemnifiable Claims shall be paid or otherwise satisfied by the Selling Parties, within ninety (90) days after notice of a bona fide Indemnifiable Claim is given to Selling Parties by Purchaser, unless such claim is disputed pursuant to Section 8.5 below. 8.5 DISPUTE RESOLUTION. If Selling Parties or Purchaser dispute their liability with respect to any Indemnifiable Claim, such dispute, or any other dispute in connection with this Article 8 shall be resolved by arbitration pursuant to Section 10.12 below. 8.6 LIMITATIONS ON OBLIGATIONS TO INDEMNIFY. (a) THRESHOLD. Except in the event of claims based upon fraud, neither Selling Parties nor Purchaser shall have any obligation to indemnify the indemnitee in respect of any single Loss or Losses, the aggregate amount of which is equal to or less than Seventy-Five Thousand Dollars ($75,000). If any Loss or Losses exceeds that amount, the indemnifying party shall be obligated to indemnify the indemnified party for the full amount of the Loss or Losses on a "dollar one" basis. In other words, if the amount of a Loss were to exceed Seventy-Five Thousand Dollars 37 39 ($75,000), the indemnifying party would be obligated to indemnify the indemnified party for the full amount of the Loss, not just the portion in excess of Seventy-Five Thousand Dollars ($75,000). (b) MAXIMUM AMOUNT AND TIME LIMIT. Neither Selling Parties nor Purchaser shall have any obligation to indemnify the other in respect of Losses exceeding the Indemnity Cap in the aggregate, or in respect of any Loss, a claim for which is made after the end of the Indemnity Period. ARTICLE 9 TERMINATION OF AGREEMENT 9.1 TERMINATION OF AGREEMENT. This Agreement and the transactions contemplated hereby may be terminated at any time prior to the Closing Date as follows: (a) By mutual written consent of Purchaser and Seller; (b) By any party if it reasonably determines that the purchase of the Included Assets has become impractical by reason of the institution by state, local or federal governmental authorities or any other person or entity of any material litigation, arbitration, grievance or other proceedings relating to this transaction against any of the parties, and notifies the other parties in writing of such determination; (c) By any party if the transactions contemplated in this Agreement have not closed on or before the Closing Deadline through no fault of either party, by giving the other party at least ten (10) business days prior written notice of termination; or (d) By Purchaser or Selling Parties pursuant to Section 9.2 below, due to the failure to obtain HSR Act clearance on or before the Closing Deadline. If the parties mutually agree, the Closing Deadline shall be extended for a reasonable period of time in order to permit the parties to pursue regulatory appeals with governmental agencies having jurisdiction over the HSR Act approval process. 9.2 FAILURE TO OBTAIN HSR ACT CLEARANCE. Notwithstanding anything in this Agreement to the contrary, Purchaser and Selling Parties shall have the right to terminate this Agreement and cancel the Escrow if the Closing does not occur before the Closing Deadline because the parties fail to obtain HSR Act clearance under Section 5.2(s) above. A party may elect to cancel this Agreement by giving written notice (the "Termination Notice") to the other parties and Escrowholder at any time after the Closing Deadline. Upon receipt of the Termination Notice, Escrowholder shall refund to Purchaser all funds then held in the Escrow, including accrued interest, and return all documents in the Escrow to the parties who had deposited same. If a Termination Notice is sent, Purchaser shall promptly vacate the Poway Facility and return to Seller all property of Seller which may then be in Purchaser's possession. 38 40 ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 NOTICES. (a) METHOD OF DELIVERY. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (b) ADDRESSES. Notices shall be addressed as follows: If to Seller: Airline Interiors, Inc. 12325 Kerran Street Poway, CA 92064 Attn: Donald Rutter Fax No.: (858) 748-0590 With copies to: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to Purchaser: Weber Aircraft, Inc. 2000 Weber Drive Gainesville, Texas 76240 Attn: Michel Labarre Fax: (940) 668-4853 With copies to: Zodiac, S.A. 2, rue Maurice Mallet 92137, Issy-les-Moulineaux Cedex France Attn: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 10 39 41 Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No.: (619) 595-1313 Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. It is agreed that separate notices need not be sent to Simtec. Notices sent to Simula shall be deemed to have been sent to Simtec. (c) EFFECTIVENESS. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 10.2 EXPENSES. Except for liabilities expressly assumed by Purchaser in the Assignment and Assumption Agreement, Purchaser and Seller shall each pay their own costs and expenses (including, without limitation, the fees and expenses of their counsel, auditors and accountants and any finders' fees) incidental to the preparation and carrying out of this Agreement and the transactions contemplated hereby. 10.3 FINDERS' FEES. Each of the parties represents and warrants to the other that, to the extent it has engaged any broker, finder or other person who is entitled to a brokerage or other fee or commission in respect of the execution of this Agreement and the consummation of the transactions contemplated hereby, such fee is the sole responsibility of such party. Purchaser shall indemnify and hold Seller harmless against and in respect of any and all claims, liabilities and/or expenses which may be asserted against Seller by any such broker or other person on the basis of any arrangement or agreement made or alleged to have been made by Purchaser, its agents or employees; and Seller shall indemnify and hold Purchaser harmless in respect of any and all claims, liabilities and/or expenses which may be asserted against Purchaser by any such broker or other person on the basis of any arrangement or agreement made or alleged to have been made by Seller, its agents or employees. 10.4 INTEGRATION AND AMENDMENT. This Agreement supersedes any and all previous agreements between the parties with respect to the subject matter herein and may not be amended other than by a written instrument executed by Purchaser and Seller, except for the Confidentiality Agreements dated March 15, 1999 and July 2, 1999, which shall remain in effect through the Closing 40 42 and which shall remain in effect in the event this Agreement is terminated. This Agreement is one of a series of agreements referenced in this Agreement which are part of an integrated transaction. All such agreements shall be taken as a whole in order to ascertain the intent of the parties. In the event of a conflict between this Agreement and the other ancillary agreements referenced in this Agreement, this Agreement shall control. 10.5 CAPTIONS. The captions and headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 10.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 10.7 PARTIES IN INTEREST. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 10.8 ASSIGNMENT. No party hereto shall assign this Agreement without first obtaining the written consent of the other parties; provided, however, that notwithstanding anything in this Agreement to the contrary, Purchaser shall be entitled to assign this Agreement, in whole or in part, to any wholly-owned subsidiary of Purchaser, it being agreed, however, that no such assignment shall release or relieve Purchaser from any liability under this Agreement. 10.9 INTERPRETATION. The language in all parts of this Agreement shall be construed, in all cases, according to its fair meaning, and not for or against any party hereto. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 10.10 GOVERNING LAW; VENUE. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 10.12. 10.11 LISTING OF SCHEDULES AND EXHIBITS. The schedules and exhibits referenced to this Agreement are listed on Annex 1 and Annex 2, respectively. All such schedules and exhibits are hereby incorporated into this Agreement by this reference. Said schedules and exhibits are not attached to this Agreement, but shall be attached to this Agreement by execution of an amendment of this Agreement prepared for such purpose. Such amendment shall be executed at least five (5) business days before the Balance Sheet Cut-Off Date. 41 43 10.12 ARBITRATION. (a) GENERAL. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. (b) THIRD-PARTY CONTROVERSY. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. (c) VENUE. All arbitration proceedings shall be held in San Diego, California. (d) NOTICES. Notice of the demand for arbitration shall be filed in writing with Purchaser and Simula (on behalf of all Selling Parties), as applicable, to this Agreement and with the American Arbitration Association. 10.13 GUARANTEE BY ZODIAC, S.A.. Purchaser is a wholly-owned subsidiary of Zodiac, S.A., a French corporation ("Zodiac"). By signing below, Zodiac agrees to unconditionally guarantee the full and complete performance of all of Purchaser's obligations under this Agreement, including without limitation, Purchaser's obligation to pay the Cash Payment in accordance with this Agreement. Such guarantee shall, however, terminate as of the Closing. 10.14 STATUS OF SCHEDULES AND EXHIBITS. As of the date of this Agreement, not all of the schedules listed on Annex 1 and all of the exhibits listed on Annex 2 have been put in final form. The status of such schedules and exhibits as of the date of execution of this Agreement is set forth in the following tables. The parties shall agree on the final form of said schedules and exhibits on or before the Effective Date. 42 44 ANNEX 1 LIST OF ATTACHED SCHEDULES
- --------------------------------------------------------------------------------- CONTROL SCHEDULE DESCRIPTION STATUS NO. NO. - --------------------------------------------------------------------------------- 1 0.3(e) Schedule of Assumed Liabilities Open - --------------------------------------------------------------------------------- 2 0.3(u) Schedule of Excluded Assets Open - --------------------------------------------------------------------------------- 3 0.3(v) Schedule of Excluded Liabilities Open - --------------------------------------------------------------------------------- 4 1.1(a) Schedule of Accounts Receivable Update - --------------------------------------------------------------------------------- 5 1.1(c) Schedule of Customer Contracts Complete - --------------------------------------------------------------------------------- 6 1.1(d) Schedule of Equipment Leases Complete - --------------------------------------------------------------------------------- 7 1.1(e) Schedule of Governmental Airworthiness Complete Approvals - --------------------------------------------------------------------------------- 8 1.1(f) Schedule of Included Inventories Update - --------------------------------------------------------------------------------- 9 1.1(g) Schedule of Intellectual Property Complete - --------------------------------------------------------------------------------- 10 1.1(i) Schedule of Other Assets Complete - --------------------------------------------------------------------------------- 11 1.1(j) Schedule of Software Licenses Update - --------------------------------------------------------------------------------- 12 1.1(k) Schedule of Supplies Complete - --------------------------------------------------------------------------------- 13 1.1(l) Schedule of Tangible Personal Property Complete - --------------------------------------------------------------------------------- 14 1.1(m) Schedule of Tooling Complete (no location) - --------------------------------------------------------------------------------- 15 1.1(n) Schedule of Vendor Contracts Complete - --------------------------------------------------------------------------------- 16 2.4 Schedule of Defaults and Violations Complete - --------------------------------------------------------------------------------- 17 2.6 Schedule of Pending Litigation Matters Complete - --------------------------------------------------------------------------------- 18 2.8 Schedule of Other Governmental Licenses, Complete Permits, and Authorizations - --------------------------------------------------------------------------------- 19 2.9 Schedule of Title Exceptions Complete - --------------------------------------------------------------------------------- 20 2.11 Schedule of Obligations and Commitments to Open Third Parties Other than Customers - --------------------------------------------------------------------------------- 21 2.13 Schedule of Financial Statements Income Stmt? - --------------------------------------------------------------------------------- 22 2.14 Schedule of Material Adverse Changes Open - --------------------------------------------------------------------------------- 23 2.16 Schedule of Uncollectible Accounts Complete Receivable - --------------------------------------------------------------------------------- 24 2.17 Schedule of Accounts Payable Update - --------------------------------------------------------------------------------- 25 2.18 Schedule of Required Consents and Complete Approvals - --------------------------------------------------------------------------------- 26 2.19(a)(1) Schedule of Personnel Agreements, Policies, Complete Procedures, etc. - --------------------------------------------------------------------------------- 27 2.19(a)(2) Schedule of Group Health Insurance Benefits Complete - --------------------------------------------------------------------------------- 28 2.19(b) Schedule of Material Employee-Related Complete - ---------------------------------------------------------------------------------
43 45
- --------------------------------------------------------------------------------- CONTROL SCHEDULE DESCRIPTION STATUS NO. NO. - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Obligations - --------------------------------------------------------------------------------- 29 2.19(c) Schedule of Personnel Payroll Roster Complete - -------------------------------------------------------------------------------- 30 2.19(d) Schedule of Accrued Vacation and Sick Day Complete Allowances - -------------------------------------------------------------------------------- 31 2.19(g) Schedule of Severance Pay Obligations Update - -------------------------------------------------------------------------------- 32 2.21 Schedule of Material Pending Insurance Complete Claims - -------------------------------------------------------------------------------- 33 2.22(a) Schedule of Standard Product Warranty Complete - -------------------------------------------------------------------------------- 34 2.22(b) Schedule of Material Warranty Claims Open - -------------------------------------------------------------------------------- 35 2.22(c) Schedule of Special Warranty Arrangements Complete - -------------------------------------------------------------------------------- 36 2.23 Schedule of Banks and Financial Institutions Complete - -------------------------------------------------------------------------------- 37 2.24 Schedule of Trade Names, Logos, Complete Trademarks, and Copyrights - -------------------------------------------------------------------------------- 38 2.25 Schedule of Patents and Patent Rights Complete - -------------------------------------------------------------------------------- 39 2.26 Schedule of Sales Agents Complete - -------------------------------------------------------------------------------- 40 2.29 Schedule of Customer List Complete - -------------------------------------------------------------------------------- 41 2.30 Schedule of Interests in Customers, Complete Suppliers, and Competitors - -------------------------------------------------------------------------------- 42 2.34 INTENTIONALLY DELETED - -------------------------------------------------------------------------------- 43 2.36 Schedule of Service Bulletins Complete - -------------------------------------------------------------------------------- 44 2.38 Schedule of Customer Order Backlog Complete - -------------------------------------------------------------------------------- 45 3.4 Schedule of Violations by Purchaser Complete - --------------------------------------------------------------------------------
ANNEX 2 LIST OF ATTACHED EXHIBITS
- -------------------------------------------------------------------------------- CONTROL EXHIBIT DESCRIPTION STATUS NO. NO. - -------------------------------------------------------------------------------- 46 A Pro Forma Closing Date Balance Sheet Approved - -------------------------------------------------------------------------------- 47 B Inventory Valuation Methodology Approved - -------------------------------------------------------------------------------- 48 C Inventory Reserve Methodology Approved - -------------------------------------------------------------------------------- 49 D Assignment and Assumption Agreement Not Approved - -------------------------------------------------------------------------------- 50 E Bill of Sale Not Approved - -------------------------------------------------------------------------------- 51 F Non-Competition Agreement Not Approved - -------------------------------------------------------------------------------- 52 G Funding Agreement Not Approved - -------------------------------------------------------------------------------- 53 H Patent License Agreement Not Approved - --------------------------------------------------------------------------------
44 46 - -------------------------------------------------------------------------------- 54 I Transition Support Agreement Not Approved - -------------------------------------------------------------------------------- 55 J Assignment of Intellectual Property Not Approved - --------------------------------------------------------------------------------
10.15 LOCATION OF DUE DILIGENCE MATERIALS. The due diligence materials referenced on the schedules listed on Annex 1 will not be attached to this Agreement. Rather, such materials are located in binders containing such due diligence materials maintained by Hillyer & Irwin. [SIGNATURES APPEAR ON FOLLOWING PAGE] 45 47 IN WITNESS WHEREOF, the parties have duly executed this Asset Purchase Agreement as of the date first set forth above. "SELLER" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Brad Forst ---------------------------------------- Printed Name: Brad Forst ------------------------------ Its: Secretary --------------------------------------- "SIMTEC" SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By: /s/ Brad Forst ---------------------------------------- Printed Name: Brad Forst ------------------------------ Its: Secretary --------------------------------------- "SIMULA" SIMULA, INC., an Arizona corporation By: /s/ Brad Forst ---------------------------------------- Printed Name: Brad Forst ------------------------------ Its: Exec. Vice President - General Council --------------------------------------- "PURCHASER" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michel Labarre ---------------------------------------- Michel Labarre, President [SIGNATURE PAGE CONTINUES] 46 48 SIGNATURE OF GUARANTOR The undersigned is executing this signature page for the limited purpose of confirming that the undersigned is guaranteeing the obligations of Purchaser under the above Agreement, as more fully provided in Section 10.13 above. Dated: 12/27/99 ZODIAC, S.A., a French corporation ------------------ By: /s/ Jegou J. Jacques -------------------------------------- Printed Name: Jegou J. Jacques ---------------------------- Its: Chief Financial Officer ------------------------------------- ACCEPTANCE OF ESCROW By signing below, the undersigned Escrowholder accepts the Escrow and agrees to comply with the escrow instructions contained in the above Agreement. Dated: 1-10-2000 Bank One, Arizona, NA ------------------ ----------------------------------------- By: /s/ Susan J. McCord -------------------------------------- Printed Name: Susan J. McCord ---------------------------- Its: Vice President ------------------------------------- 47 49 EXHIBIT A TERM LOAN PROMISSORY NOTE December 30, 1999 $5,000,000 FOR VALUE RECEIVED, each of the undersigned, jointly and severally (collectively, the "Company"), promises to pay to the order of THE CIT GROUP/BUSINESS CREDIT, INC. (herein "CITBC") at its office located at 300 South Grand Avenue, 3rd Floor, Los Angeles, California 90071, in lawful money of the United States of America and in immediately available funds, the principal amount of Five Million Dollars ($5,000,000) payable in equal monthly principal installments of $555,556 each commencing on the date 90 days after the Closing Date, and each subsequent installment shall be due on the same day of the month, followed by an installment of the remaining principal balance together with accrued and unpaid interest at the maturity date hereof on August 31, 2000. In any event, the principal balance hereof and any accrued and unpaid interest shall be due and payable upon the maturity of the Obligations under the Financing Agreement. The Company further agrees to pay interest at said office, in like money, on the unpaid principal amount owing hereunder from time to time from the date hereof on the date and at the rate specified in Section 8, Paragraph 2 of the Financing Agreement of even date herewith between the Company and CITBC (the "Financing Agreement"). Capitalized terms used herein and defined in the Financing Agreement shall have the same meanings as set forth therein unless otherwise specifically defined herein. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. This Note is the Term Loan Promissory Note referred to in the Financing Agreement, evidences the Term Loan thereunder, and is subject to, and entitled to, all provisions and benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. Upon the occurrence of any one or more of the Events of Default specified in the Financing Agreement or upon termination of the Financing Agreement, all amounts then remaining 51 50 unpaid on this Note may become, or be declared to be, at the sole election of CITBC, immediately due and payable as provided in the Financing Agreement. SIMULA, INC. By /s/ James C. Dodd ----------------------------------- Title: Executive Vice President & CFO ------------------------------ AIRLINE INTERIORS, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ ARTCRAFT INDUSTRIES CORP. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.) By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ 52 51 SIMULA AUTOMOTIVE SAFETY DEVICES, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ SIMULA COMPOSITES CORPORATION By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ SIMULA POLYMER SYSTEMS, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ SIMULA SAFETY SYSTEMS, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ SIMULA TECHNOLOGIES, INC. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ 53 52 SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ CCEC CAPITAL CORP. By /s/ James C. Dodd ----------------------------------- Title: Treasurer ------------------------------ 54 53 CIT / SIMULA Schedule 1 Existing Liens (Attached) 54 SCHEDULE 1 Existing Liens
=============================================================================================================================== FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------------------------------------------------------------------------------------------------------------------------- SIMULA, INC. SOS, AZ 774717 AVNET COMPUTER TECHNOLOGIES, INC. Equipment 12-10-99 UCC 02-08-94 - ------------------------------------------------------------------------------------------------------------------------------- 774719 AVNET COMPUTER TECHNOLOGIES, INC. Equipment 02-08-94 - ------------------------------------------------------------------------------------------------------------------------------- 806105 AVNET COMPUTER TECHNOLOGIES, INC. Equipment 10-24-94 - ------------------------------------------------------------------------------------------------------------------------------- 924130 US BANCORP LEASING & FINANCIAL Equipment and proceeds 07-02-96 - ------------------------------------------------------------------------------------------------------------------------------- 935636 US BANCORP LEASING & FINANCIAL Specific Equipment 09-18-96 - ------------------------------------------------------------------------------------------------------------------------------- 940491 US BANCORP LEASING & FINANCIAL Equipment and proceeds 10-22-96 - ------------------------------------------------------------------------------------------------------------------------------- 948142 US BANCORP LEASING & FINANCIAL Specific Equipment 12-17-96 - -------------------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 1 of 9 55 SCHEDULE 1 Existing Liens
FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ----------------------------------------------------------------------------------------------------------------------------------- 955078 US BANCORP LEASING Specific Equipment 02-07-97 & FINANCIAL - ----------------------------------------------------------------------------------------------------------------------------------- 984273 WELLS FARGO LEASING Computer Equipment 9-11-97 CORPORATION (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 01042061 BANK ONE, ARIZONA, Blanket 11-18-98 NA - ----------------------------------------------------------------------------------------------------------------------------------- 01001258 WELLS FARGO LEASING Computer Equipment 01-20-98 CORPORATION (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 1060115 NEW ENGLAND CAPITAL Communications 03-30-99 CORPORATION Equipment - ----------------------------------------------------------------------------------------------------------------------------------- Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits - ----------------------------------------------------------------------------------------------------------------------------------- AIRLINE INTERIORS, SOS, AZ 1042065 BANK ONE, ARIZONA, Blanket 12-10-99 INC. UCC 11-18-98 NA - ----------------------------------------------------------------------------------------------------------------------------------- Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits - -----------------------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 2 of 9 56 SCHEDULE 1 Existing Liens - ------------------------------------------------------------------------------------------------------------------------------ FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------------------------------------------------------------------------------------------------------------------------ AIRLINE INTERIORS, INC. SOS, CA 9508760473 SOUTHWEST YALE MATERIAL 1 forklift 12-01-99 UCC 03-23-95 HANDLING COMPANY - ------------------------------------------------------------------------------------------------------------------------------ 9530760787 MASTER LEASE DIV OF TOKAI IDS phone system 11-01-95 - ------------------------------------------------------------------------------------------------------------------------------ 9634860727 U.S. BANCORP LEASING Specific Equipment 12-13-96 & FINANCIAL (lease) - ------------------------------------------------------------------------------------------------------------------------------ 9705060100 U.S. BANCORP LEASING Specific Equipment 02-10-97 & FINANCIAL (lease) - ------------------------------------------------------------------------------------------------------------------------------ 9705660817 MINOLTA BUSINESS SYSTEMS 1 copier (lease) 02-18-97 - ------------------------------------------------------------------------------------------------------------------------------ 9709760767 TOKAI FINANCIAL SERVICES, IDS phone system 03-31-97 INC. - ------------------------------------------------------------------------------------------------------------------------------ 9823660539 NEW ENGLAND CAPITAL Specific Equipment 08-20-98 CORPORATION (lease) - ------------------------------------------------------------------------------------------------------------------------------ 9906760112 CROWN CREDIT COMPANY Specific Equipment 02-25-99 - ------------------------------------------------------------------------------------------------------------------------------ 9924560183 MINOLTA BUSINESS SYSTEMS Copiers (lease) 08-20-99 - ------------------------------------------------------------------------------------------------------------------------------ ARTCRAFT INDUSTRIES CORP. SOS, AZ 1042066 BANK ONE, ARIZONA, NA Blanket UCC 11-18-98 - ------------------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 3 of 9 57 SCHEDULE 1 Existing Liens FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION ____________________________________________________________________________________________________________________________________ ARTCRAFT Maricopa County, AZ 10-27-99 INDUSTRIES CORP. UCC, Tax Liens, Clear Judgments, Suits ____________________________________________________________________________________________________________________________________ SOS, WI 1714065 FBS BUSINESS FINANCE Specific Equipment 10-28-99 UCC 11-10-97 CORPORATION (lease) ____________________________________________________________________________________________________________________________________ 1727698 FBS BUSINESS FINANCE Specific Equipment 01-12-98 CORPORATION ____________________________________________________________________________________________________________________________________ 1736595 U.S. BANCORP LEASING 6 commercial sewing 02-16-98 & FINANCIAL machines ____________________________________________________________________________________________________________________________________ 1750761 LPI SOFTWARE FUNDING Specific Equipment 04-13-98 GROUP, INC. (lease) ____________________________________________________________________________________________________________________________________ 1805630 BANK ONE, ARIZONA, NA Blanket 11-19-98 ____________________________________________________________________________________________________________________________________ 1805631 BANK ONE, ARIZONA, NA Blanket 11-19-98 ____________________________________________________________________________________________________________________________________ Clayton County, GA 031-98-003184 U.S. BANCORP LEASING commercial sewing 12-03-99 UCC, Tax Liens, 05-19-98 & FINANCIAL machines Judgments, Suits ____________________________________________________________________________________________________________________________________ Fulton County, GA 23430 FBS BUSINESS Specific Equipment 11-16-99 UCC, Tax Liens, 11-12-97 FINANCE CORPORATION (lease) Judgments, Suits ____________________________________________________________________________________________________________________________________
CIT\SIMULA\SCHEDULE 1 Page 4 of 9 58 SCHEDULE 1 Existing Liens
FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------- ------------ ----------- ------------- ---------- ---------- ------ ARTCRAFT INDUSTRIES CORP. Gwinnett County, GA 12-08-99 unofficial UCC, Tax Liens, Clear search Judgments, Suits INTERNATIONAL CENTER FOR SOS, AZ 1042071 BANK ONE, ARIZONA, NA Blanket 12-10-99 SAFETY EDUCTION, INC. UCC 11-18-98 Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits SIMULA AUTOMOTIVE SOS, AZ 945969 US BANCORP LEASING Computer SAFETY DEVICES, INC. UCC 12-03-96 & FINANCIAL Equipment 948141 US BANCORP LEASING Computer 12-17-96 & FINANCIAL Equipment 955077 US BANCORP LEASING Equipment 02-07-97 & FINANCIAL 1042063 BANK ONE, ARIZONA, NA Blanket 11-18-98 1042070 BANK ONE, ARIZONA, NA Blanket 11-18-98 Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits
CIT\SIMULA\SCHEDULE 1 Page 5 of 9 59 SCHEDULE 1 Existing Liens
=============================================================================================================================== FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - -------------------------------------------------------------------------------------------------------------------------------- SIMULA AUTOMOTIVE SAFETY United Kingdom DEVICES, LIMITED - -------------------------------------------------------------------------------------------------------------------------------- SIMULA COMPOSITES SOS, AZ 12-10-99 CORPORATION UCC Clear - -------------------------------------------------------------------------------------------------------------------------------- Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments - -------------------------------------------------------------------------------------------------------------------------------- SOS, DE 11-30-99 UCC Clear - -------------------------------------------------------------------------------------------------------------------------------- SIMULA POLYMER SOS, AZ 12-10-99 SYSTEMS, INC. UCC - -------------------------------------------------------------------------------------------------------------------------------- Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits - -------------------------------------------------------------------------------------------------------------------------------- SIMULA PROTECTIVE United Kingdom SYSTEMS, LIMITED - -------------------------------------------------------------------------------------------------------------------------------- SIMULA SAFETY SYSTEMS, SOS, AZ 1042062 BANK ONE, ARIZONA, NA Blanket 12-10-99 INC. UCC 11-18-98 - -------------------------------------------------------------------------------------------------------------------------------- 1049869 GE CAPITAL Business Machinery/ 01-19-99 Equipment - --------------------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 6 of 9 60 SCHEDULE 1 Existing Liens
==================================================================================================================================== FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------------------------------------------------------------------------------------------------------------------------------ SIMULA SAFETY SYSTEMS, INC. Coconino County, AZ 12-06-99 UCC, Tax Liens Clear Judgments, Suits - ------------------------------------------------------------------------------------------------------------------------------------ Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits - ------------------------------------------------------------------------------------------------------------------------------------ Yavapai County, AZ 11-25-99 UCC, Tax Liens, Clear Judgments, Suits - ------------------------------------------------------------------------------------------------------------------------------------ SOS, NC 199887977 BANK ONE ARIZONA Blanket 10-22-99 UCC 11-20-98 - ------------------------------------------------------------------------------------------------------------------------------------ 199931144 TRIMARC FINANCIAL, Specific Equipment 03-30-99 INC. (lease) - ------------------------------------------------------------------------------------------------------------------------------------ Buncombe County, NC 12-10-99 UCC, Tax Liens, Clear Judgments, Suits - ------------------------------------------------------------------------------------------------------------------------------------ SIMULA TECHNOLOGIES, INC. SOS, AZ 948138 US BANCORP LEASING Equipment 12-10-99 UCC 12-17-96 & FINANCIAL - ------------------------------------------------------------------------------------------------------------------------------------ 955075 US BANCORP LEASING Equipment 02-07-97 & FINANCIAL - ------------------------------------------------------------------------------------------------------------------------------------ 01021448 MAX MACHINERY, INC. Equipment 06-19-98 - ------------------------------------------------------------------------------------------------------------------------------------ SIMULA TECHNOLOGIES, INC. 1041771 NEW ENGLAND CAPITAL Equipment 12-10-99 (continued) 11-16-98 CORPORATION - ------------------------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 7 of 9 61 SCHEDULE 1 Existing Liens
FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------- ------------ ----------- ------------- ---------- ---------- ------ 1042069 BANK ONE, ARIZONA, NA Blanket 11-18-98 1049371 FIDELITY LEASING, INC. Specific Equipment 01-14-99 (lease) 1059879 NEW ENGLAND CAPITAL Equipment 03-29-99 CORPORATION Maricopa County, AZ 99-0329415 TRIMARC FINANCIAL, INC. Specific Equipment UCC, Tax Liens, 04-07-99 (lease) Judgments, Suits 98-1101538 TRIMARC FINANCIAL, INC. Specific Equipment 12-07-98 (lease) SIMULA GOVERNMENT SOS, AZ 862182 ADVANTA BUSINESS Inventory PRODUCTS, INC. UCC 01-11-96 SERVICES CORP. 945970 US BANCORP LEASING Equipment 12-03-96 & FINANCIAL 945974 US BANCORP LEASING Equipment 12-03-96 & FINANCIAL 948140 US BANCORP LEASING Equipment 12-17-96 & FINANCIAL 955076 US BANCORP LEASING Equipment 02-07-97 & FINANCIAL SIMULA GOVERNMENT PRODUCTS SOS, AZ 963864 THE CIT GROUP/EQUIPMENT Equipment 12-10-99 INC. (continued) UCC 04-15-97 FINANCING INTAERO, INC. SOS, AZ 1042072 BANK ONE, ARIZONA, NA Blanket 12-10-99 UCC 11-18-98
CIT\SIMULA\SCHEDULE 1 Page 8 of 9 62 SCHEDULE 1 Existing Liens
FILE NUMBER THRU DATE/ NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION - ------------------------------------------------------------------------------------------------------------------ Maricopa County, AZ 10-27-99 UCC, Tax Liens, Clear Judgments, Suits - ------------------------------------------------------------------------------------------------------------------
CIT\SIMULA\SCHEDULE 1 Page 9 of 9 63 CIT/SIMULA SCHEDULE 2 a) Location of Chief Executive Office: 2700 N. Central Avenue Suite 1000 Phoenix, Arizona 85004 b) Location of Collateral: All collateral is located on the premises of the Company's operating subsidiaries (or under the control of the subsidiaries), the description of which is attached. 64 COMPANY INFORMATION UPDATED: DECEMBER 1999
================================================================================================================================ COMPANY PHONE/FAX FEDERAL I.D. DIRECTORS OFFICERS CONTACT(S) - -------------------------------------------------------------------------------------------------------------------------------- Simula, Inc. ph. (602) 631-4005 Arizona Stan Desjardins Chairman - Stan Desjardins Don Townsend 2700 North Central fax (602) 631-9005 86-0320129 Don Townsend President & CEO - Don Townsend Avenue Brad Forst Secretary - Brad Forst Suite 1000 Jim Saunders Treasurer - James Dodd Phoenix, Arizona John Leinonen Assistant Treasurer - Scott Huson 85004 Don Olliver James Withers Lon Offenbacher Thomas Emerson - -------------------------------------------------------------------------------------------------------------------------------- Airline Interiors, Inc. ph. (858) 748-1117 Arizona Don Rutter President - Don Rutter Jim Saunders 12325 Kerran Street fax (858) 748-1937 doing business Jim Saunders Treasurer - Gary Perschbacher Poway, CA 92064 in CA Don Townsend Secretary - Brad Forst 86-0768865 Brad Forst Assistant Treasurer - James Dodd - -------------------------------------------------------------------------------------------------------------------------------- Artcraft Industries ph. (404) 768-8377 Arizona Brad Forst Rick Zaugg - President Rick Zaugg Corp. fax (404) 768-0735 Jim Saunders Dan Dunn - Treasurer 4753 Aviation Parkway Don Townsend Jim Dodd - Assistant Treasurer Suite F Brad Forst - Secretary College Park, GA 30349 - -------------------------------------------------------------------------------------------------------------------------------- International Center for ph: (602) 631-4005 Arizona Stan Desjardins President - Stan Desjardins Joe Coltman Safety Education, Inc. fax (602) 631-4020 86-0787589 Don Townsend Secretary - Brad Forst 10016 South 51st Street Joe Coltman Treasurer - James Dodd Phoenix, Arizona 85044 - -------------------------------------------------------------------------------------------------------------------------------- Simula Automotive ph. (480) 831-6129 Arizona Don Townsend President - Gershon Yaniv Gershon Yaniv Safety Devices, Inc. fax (480) 831-5543 86-0789385 Jim Saunders Secretary - Brad Forst (ASD - Simula) Brad Forst Treasurer - James Dodd 7360 S. Kyrene Road Gershon Yaniv Suite 106 Tempe, Arizona 85283 ================================================================================================================================
G/Legal/Corporate/Subsidiaries/Address List with Officers 1 65 COMPANY INFORMATION UPDATED: DECEMBER 1999
================================================================================================================================ COMPANY PHONE/FAX FEDERAL I.D. DIRECTORS OFFICERS CONTACT(S) - -------------------------------------------------------------------------------------------------------------------------------- Simula Automotive Safety ph. 011-44-1670-562000 United Kingdom Don Townsend President -- David Horn David Horn Devices, Limited fax 011-44-1670-8555-590 Jim Saunders Secretary -- Brad Forst Gershon Yaniv Unit 2 Gershon Yaniv Wansbeck Business Park Rotary Parkway, Ashington Northumberland NE63 8QZ United Kingdom (subsidiary of ASD -- Simula in U.S.) - ----------------------------------------------------------------------------------------------------------------------------------- Simula Composites Corporation ph. (480) 894-9100 Delaware Stan Desjardins President -- Harry Jones Harry Jones 2495 South Industrial Park fax (480) 894-9111 86-0763930 Don Townsend Secretary -- Brad Forst Avenue doing business Brad Forst Treasurer -- James Dodd Tempe, Arizona 85282 in Arizona - ----------------------------------------------------------------------------------------------------------------------------------- Simula Polymer Systems, Inc. ph. (480) 753-2000 Arizona Joe Coltman Brad Forst -- President Brad Forst 10016 South 51st Street fax (480) 893-8643 Corporation Brad Forst Joe Coltman -- Vice Phoenix, Arizona 85044 ID Applied For Don Townsend President James Dodd -- Secretary/ Treasurer - ----------------------------------------------------------------------------------------------------------------------------------- Simula Protective Systems, see Don Townsend United Kingdom Don Townsend N/A Don Townsend Limited Unit 2 Wansbeck Business Park Rotary Parkway, Ashington Northumberland NE63 8QZ United Kingdom (ASD-UK) - ----------------------------------------------------------------------------------------------------------------------------------- Simula Safety Systems, Inc., ph. (480) 893-7533 Arizona Stan Desjardins President -- Sherwin Hudson Applied Technologies fax (480) 893-8643 86-0742551 Don Townsend Stan Desjardins San Desjardins Division (ATD) Brad Forst Secretary -- Mike Haerle Bill Rogers 7414 South Harl Avenue Jim Saunders Assistant Secretary -- Tempe, Arizona 85283 Sherwin Hudson Brad Forst Treasurer -- Mike Haerle Assistant Treasurer -- James Dodd - ----------------------------------------------------------------------------------------------------------------------------------- Simula Safety Systems, Inc., ph. (828) 277-1979 A division of Barry Shope, GM SEI Division fax (828) 274-1627 SSSI Sherwin Hudson Safety Equipment International (SEI) 537 Sweeten Creek Industrial Park Asheville, North Carolina 28803 ===================================================================================================================================
G/Legal/Corporate/Subsidiaries/Address List with Officers 2 66 COMPANY INFORMATION UPDATED: December 1999
==================================================================================================================================== COMPANY PHONE/FAX FEDERAL I.D. DIRECTORS OFFICERS CONTACT(S) - ------------------------------------------------------------------------------------------------------------------------------------ Simula Safety Systems Inc., Sedona ph. (520) 204-1404 A division of Vern Dorrell, GM Scientific Division fax (520) 282-4998 SSSI Sherwin Hudson Sedona Scientific (SS) (Division of SSSI) 30 Kayenta Court Sedona, Arizona 86336-3729 - ------------------------------------------------------------------------------------------------------------------------------------ Simula Technologies, Inc. (STI) ph. (480) 753-2000 Arizona Stan Desjardins President - Joe Coltman Joe Coltman 10016 South 51st Street fax (480) 893-8643 86-0842935 Don Townsend Secretary - Brad Forst Phoenix, Arizona 85044 Joe Coltman Treasurer - James Dodd Brad Forst - ------------------------------------------------------------------------------------------------------------------------------------ Simula Transportation Equipment ph. (619) 535-9056 Arizona Don Townsend President - Don Rutter Don Rutter Corporation (SIMTEC) fax (619) 535-9628 authorized in Don Rutter Secretary - Brad Forst Jim Saunders (formerly Intaero, Inc.) CA as Intaero Brad Forst Treasurer - James Dodd 9940 Mesa Rim Road Holdings, Inc. San Diego, CA 92121 86-0742552 - ------------------------------------------------------------------------------------------------------------------------------------ CCEC Capital Corp. (formerly Coach 86-0763929 Brad Forst President - Brad Forst Ben Clark and Car Equipment Corporation) Ben Clark Secretary - James Dodd Treasurer - James Dodd - ------------------------------------------------------------------------------------------------------------------------------------ Inataero, Limited (inactive) - ------------------------------------------------------------------------------------------------------------------------------------
G\Legal\Corporate/Subsidiaries/Address List with Offices 3 67 EXHIBIT 10.40b AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT This AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT (the "Amendment") is executed as of this 1st day of February, 2000, by and among AIRLINE INTERIORS, INC., an Arizona corporation ("Seller"), SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation ("Simtec"), and SIMULA, INC., an Arizona corporation ("Simula"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Purchaser"), with reference to the facts set forth in the Recitals below. RECITALS A. Seller, Simula, Simtec and Purchaser are parties to a certain Asset Purchase Agreement dated December 24, 1999 (the "Asset Purchase Agreement"). B. Seller, Simula and Simtec are sometimes collectively referred to as the "Selling Parties." C. At the time that the Asset Purchase Agreement was executed, none of the exhibits were attached to the Agreement and all of the schedules (the "Schedules") to the Asset Purchase Agreement were incomplete. D. The parties have agreed on the form of the documents comprising the Exhibits and now desire to amend the Asset Purchase Agreement to incorporate the Exhibits. E. Selling Parties have provided Purchaser with the information needed to complete the Schedules and the parties also desire to amend the Asset Purchase Agreement to incorporate the Schedules. F. The parties also desire to amend the Asset Purchase Agreement to incorporate certain other provisions and to correct certain errors contained in the Asset Purchase Agreement. G. The parties are executing this Amendment in order to memorialize their understanding concerning the matters referenced above. 1 68 AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. INTERPRETATION. Except as amended by this Amendment, the Asset Purchase Agreement shall remain in full force and effect. In the event of a conflict between the provisions of this Amendment and those of the Asset Purchase Agreement, this Amendment shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement, unless the context of this Amendment requires otherwise. 2. SCHEDULES. The Schedules referred to in the Asset Purchase Agreement have now been completed and are listed in Annex 1 to the Asset Purchase Agreement. Annex 1 and the Schedules listed therein are attached to this Amendment and are hereby incorporated into the Asset Purchase Agreement by this reference. 3. EXHIBITS. The Exhibits referred to in the Asset Purchase Agreement have now been completed and are listed on Annex 2 to the Asset Purchase Agreement. Annex 2 and the Exhibits listed below are attached to this Amendment and are hereby incorporated into the Asset Purchase Agreement by this reference. (a) Control No. 46: Exhibit A - Pro Forma Closing Date Balance Sheet, (b) Control No. 47: Exhibit B - Inventory Valuation Methodology (c) Control No. 48: Exhibit C - Inventory Reserve Methodology (d) Control No. 49: Exhibit D - Assignment and Assumption Agreement, (e) Control No. 50: Exhibit E - Bill of Sale, (f) Control No. 51: Exhibit F - Non-Competition Agreement, (g) Control No. 52: Exhibit G - Funding Agreement, (h) Control No. 53: Exhibit H - Patent License Agreement, (i) Control No. 54: Exhibit I - Transition Support Agreement, (j) Control No. 55: Exhibit J - Assignment of Intellectual Property, and (k) Control No. 56: Exhibit K - Pre-Closing Balance Sheet. 2 69 4. PRE-CLOSING BALANCE SHEET. The parties have agreed on the final form of the Pre-Closing Balance Sheet. The final form of the Pre-Closing Balance Sheet is attached hereto as Exhibit "K." The parties acknowledge that the Agreed Inventory Value on line 5 of the Post-Closing Date Balance Sheet is in error. The value of the Included Inventory will be adjusted downward as part of the Post-Closing Accounting Adjustments to reflect the application of a 70% valuation factor (as opposed to a 100% valuation factor) on the items identified as LDC UK and LDC-1. 5. AMENDMENT OF SECTION 0.1(g). Section 0.1(g) of the Asset Purchase Agreement is hereby amended and restated in is entirety to read as follows: "(g) Indemnity Cap . $2,050,000. See Section 8.6(b) below." 6. AMENDMENT OF SECTION 0.1(h). Section 0.1(h) of the Asset Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(h) INDEMNITY PERIOD. The period of time specified in Section 0.3(cc). See also Section 8.6 below." 7. AMENDMENT OF SECTION 0.3(p). Section 0.3(p) of the Asset Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(p) CLOSING DOCUMENTS. The term "Closing Documents" shall mean and include: (1) Assignment and Assumption Agreement (Exhibit "D"), (2) Bill of Sale (Exhibit "E"), (3) Non-Competition Agreement (Exhibit "F"), (4) Patent License Agreement (Exhibit "H"), (5) Transition Support Agreement (Exhibit "I"), (6) Assignment of Intellectual Property (Exhibit "J"), (7) Pre-Closing Balance Sheet (Exhibit "K"), (8) Asset Acquisition Statement (IRS Form 8594), and (9) Such other documents and agreements as may be reasonably required to carry out and implement the transactions contemplated in this Agreement." 3 70 8. AMENDMENT OF SECTION 0.3(cc). Section 0.3(cc) of the Asset Purchase Agreement is hereby amended and restated in its entirety to read as follows: "0.3(cc) INDEMNITY PERIOD. The term "Indemnity Period" shall mean a period beginning on the Closing Date and ending at two different times. The Indemnity Period shall end as to all Indemnifiable Claims (as defined in Section 8.1 below) on the last day (the "First Termination Date") of the calendar month in which falls the 18th month anniversary of the Closing. As to warranty claims for Products sold by Seller, the Indemnity Period shall extend to the last day of the calendar month in which falls the 24th month anniversary of the Closing. After the First Termination Date, the only Indemnifiable Claims which Purchaser may assert are the warranty claims specified in the preceeding sentence. See Section 8.6(b) below." 9. AMENDMENT OF SECTION 0.3(nn)(3). Section 0.3(nn)(3) is hereby amended and restated in its entirety as follows: "(3) The "Agreed Offsets" shall be equal to the sum of (i) a warranty offset in the amount of One Million Seven Hundred Twenty-One Thousand Nine Hundred Twelve Dollars ($1,721,912), (ii) a certification offset in the amount of Five Hundred Sixty Thousand Dollars ($560,000), (iii) a reserve for passenger control units sold by Seller in the amount of Five Hundred Thousand Dollars ($500,000) (as set out in Schedule 2.22(b) and due diligence document Z-005), and (iv) a reserve for certain contractual liabilities of Seller to Air 2000, Air Tours, ILFC/Flying Colors and ILFC/Asiana in the amount of One Hundred Forty Three Thousand Dollars ($143,000) (as set out in Schedule 2.41). The procedures to be followed in computing the Agreed Inventory Value will reflect an inventory reserve computed in accordance with Exhibit "C." 10. AMENDMENT OF SECTION 2.40. Section 2.40 of the Asset Purchase Agreement is hereby amended and restated to read as follows: "2.40 BID AND PROPOSAL LIST. Schedule 2.40 is a true, correct and complete listing of all outstanding bids and proposals (as of the Closing) made by Seller for the sale of the Products to customers." 11. AMENDMENT OF SECTION 2.41. Section 2.41 of the Asset Purchase Agreement is hereby amended and restated to read as follows: "2.41 NO SIDE AGREEMENTS. Except as set forth on Schedule 2.41, no past or present officer, director, employee, representative or agent of Selling Parties has made 4 71 any promise or commitment (oral or written) to grant any customer of Seller any concession or consideration for orders for the Products and there are no other contractual commitments to customers." 12. AMENDMENT OF SECTION 7.16(b). Section 7.16(b) of the Asset Purchase Agreement is hereby amended by replacing the last sentence of said section with the following: "If it is later determined that the assumed physical inventory count used to prepare the Pre-Closing Balance Sheet was in error, an appropriate adjustment shall be made to the Cash Payment at the time the Post-Closing Accounting Adjustments are made, it being agreed that Purchaser shall have, if applicable, the same right of offset against the Simula Payables under this Section 7.16(b) as provided in Section 7.16(a). If the amount of the Post-Closing Accounting Adjustments that may be due Purchaser under any part of this Section 7.16 exceeds the amount of the Simula Payables, Simula shall pay any amount due Purchaser within five (5) business days after demand." 13. AMENDMENT OF SECTION 7.7. Section 7.7 of the Asset Purchase Agreement is hereby amended by adding the following after the last sentence of said section: "Purchaser shall waive the requirement for said "tail coverage," provided Selling Parties maintain in effect for a term of at least four (4) years after the Closing the coverage reflected on the Certificate of Insurance dated July 30, 1999 identified as number 602-381-2800 issued by Acordia of Arizona identifying Simula as the insured and provided further that Purchaser is included as an additional named insured on said policy." 14. AMENDMENT OF SECTION 10.6. Section 10.6 of the Asset Purchase Agreement is hereby amended and restated as follows: "10.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts." 15. NEW SECTION 10.16. The Asset Purchase Agreement is hereby amended by adding the following provision as Section 10.16: "10.16 WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach thereunder or hereunder shall not prevent 5 72 subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach thereunder or hereunder." 16. NEW SECTION 10.17. The Asset Purchase Agreement is hereby amended by adding the following provision as Section 10.17: "10.17 SEVERABILITY. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach." 17. NEW SECTION 10.18. The Asset Purchase Agreement is hereby amended by adding the following provision as Section 10.18: "10.18 ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award." 18. NEW SECTION 10.19. The Asset Purchase Agreement is hereby amended by adding the following provision as Section 10.19. "10.19 NON-ASSUMPTION OF CERTAIN CUSTOMER CONTRACTS. The parties understand that Purchaser is not assuming all of the Customer Contracts. The Customer Contracts which Purchaser is assuming are listed on Exhibit "A" to the 6 73 Assignment and Assumption Agreement. As for those Customer Contracts (the "Unassumed Customer Contracts") which Purchaser is not assuming and which are open as of the Closing, Purchaser may seek to negotiate new contractual arrangements for the sale of Products to the customers under the Unassumed Customer Contracts after the Closing. In such event, Purchaser shall use its best efforts to cause such customers to release Seller from any liability which Seller may have to such customers under the Unassumed Customer Contracts. Nothing in this Section 10.19 shall be construed as meaning or implying that Seller has any liability to such customers." [SIGNATURES APPEAR ON FOLLOWING PAGE] 7 74 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 to Asset Purchase Agreement as of the date first set forth above. "SELLER" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Bradley P. Forst -------------------------------------------- Printed Name: Bradley P. Forst ---------------------------------- Its: Secretary ------------------------------------------- "SIMTEC" SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By: /s/ Bradley P. Forst -------------------------------------------- Printed Name: Bradley P. Forst ---------------------------------- Its: Secretary ------------------------------------------- "SIMULA" SIMULA, INC., an Arizona corporation By: /s/ James C. Dodd -------------------------------------------- Printed Name: James C. Dodd ---------------------------------- Its: CFO ------------------------------------------- "PURCHASER" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michel Labarre -------------------------------------------- Michel Labarre, President 8 75 CONTROL NO. 56 EXHIBIT "K" Pre-Closing Date Balance Sheet (as of January 24, 2000)
Pro Forma Amount ---------------- 1. ASSETS 2. CURRENT ASSETS 3. - Cash and Cash Equivalents(1) $ -0- 4. - Accounts Receivable (net of reserve of $687,825.40)(2) $ 6,758,865.51 5. - Agreed Inventory Value(3) $ 6,881,773.67 6. - Prepaid Expenses $ -0- 7. TOTAL CURRENT ASSETS $ 13,640,639.18 8. Property and equipment - (net)(4) $ 608,000.00(5) 9. Intangibles - (net) $ 6,500,000.00 10. Other assets(6) $ -0- 11. TOTAL ASSETS $ 20,748,639.18
- ---------- (1) Seller shall retain all cash. (2) The Accounts Receivable reserve will be eliminated as part of the Post-Closing Accounting Adjustments. (3) After valuation adjustment per Exhibit "B," and after applying a reserve factor pursuant to Exhibit "C." The value of the Included Inventory will be adjusted downward as part of the Post-Closing Accounting Adjustments to reflect the application of a 70% valuation factor as opposed to a 100% valuation factor on the items identified as LDC UK and LDC-1. (4) "Property and Equipment" consists of all of the following items: (a) Demonstration/Sample Seats [no allocation] (b) Tooling (c) Computers (d) Manufacturing Equipment ---------- TOTAL $ 608,000 ==========
(5) This amount is fixed and will not change. (6) The term"other assets" as used here is not synonymous with the term Other Assets as used in the Agreement. 76
Pro Forma Amount ---------------- 12. LIABILITIES AND SHAREHOLDER'S EQUITY 13. CURRENT LIABILITIES 14. - Trade Accounts Payable $ 3,858,304.84 15. - Other Accrued Liabilities(7) $ 150,000.00 16. - Simula Payables(8) $ 2,456,762.69 17A. - Agreed Offset: Warranty offset(9) $ 1,721,912.00 17B. - Agreed Offset: Certification offset(9) $ 560,000.00 17C. - Agreed Offset: Passenger control unit offset(9) $ 500,000.00 17D. - Agreed Offset: Contractual liability offset(9) $ 143,000.00 18. TOTAL CURRENT LIABILITIES $ 9,389,979.53 19. Long-Term Debt -0- 20. TOTAL LIABILITIES $ 9,389,979.53 21. SHAREHOLDER'S EQUITY (Seller's Adjusted Net Worth) 22. - Shareholder's Equity $11,358,659.65 23. INTENTIONALLY LEFT BLANK 24. TOTAL LIABILITIES AND $20,748,639.18 SHAREHOLDER'S EQUITY
- ---------- (7) This item reflects the cost of GECAS Six Sigma Training which Seller agreed to provide to this customer. (8) See Section 0.3(e)(2) of the Agreement. (9) See Section 0.3(nn)(3) of the Agreement. 77 Exhibit 10.40c ASSIGNMENT AND ASSUMPTION AGREEMENT (Section 1.4) This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is executed as of this 1st day of February 2000, by and among AIRLINE INTERIORS, INC., an Arizona corporation ("Seller"), SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation ("Simtec"), SIMULA, INC., an Arizona corporation ("Simula"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Purchaser"), with reference to the facts set forth in the Recitals below. RECITALS A. Seller and Purchaser, among others, are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement"). This Agreement is being executed pursuant to Sections 1.1 and 1.4 of the Asset Purchase Agreement. B. Simula is the sole shareholder of Simtec, which is in turn the sole shareholder of Seller. Simula, Simtec and Seller are sometimes collectively referred to as the "Selling Parties." C. Pursuant to the Asset Purchase Agreement, Seller has agreed to sell to Purchaser certain assets referred to in Section 1.1 of the Asset Purchase Agreement as the Included Assets. D. Section 1.1 of the Asset Purchase Agreement provides that, as a part of the sale of the assets contemplated in the Asset Purchase Agreement, that Seller shall assign to Purchaser all of its right, title and interest in and to the Included Assets. E. This Agreement is intended to assign certain of those Included Assets to Purchaser. The other Included Assets shall be sold, transferred, delivered or assigned to Purchaser in the Bill of Sale and the Assignment of Intellectual Property. F. Section 1.4 of the Asset Purchase Agreement, provides that Purchaser will assume at the Closing the Assumed Liabilities of Seller with respect to the Business, which are set forth on Exhibit "A" hereto. The Assumed Liabilities shall not include the Excluded Liabilities, which are set forth on the Schedule of Excluded Liabilities attached as Control No. 3 (Schedule 0.3(v)). G. The parties are executing this agreement in order to memorialize their understanding concerning the foregoing. 1 78 AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals, the mutual covenants contained below in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE 1 INTERPRETATION 1.1 INTERPRETATION. This Agreement is intended to implement the terms and conditions of the Asset Purchase Agreement. In the event of a conflict between the provisions of this Agreement, the Bill of Sale and those of the Asset Purchase Agreement, the Asset Purchase Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement unless the context of this Agreement requires otherwise. 1.2 PARTIES' INTENT. Subject to the Closing of the transactions contemplated in the Asset Purchase Agreement, the parties intend that: (a) Seller shall assign and Purchaser shall assume any and all right, title and interest to all of the Included Assets by virtue of this Agreement, the Bill of Sale and the Assignment of Intellectual Property; (b) Purchaser shall be solely responsible for the Assumed Liabilities assumed pursuant to this Agreement. The Excluded Liabilities are not part of the Assumed Liabilities. Selling Parties shall be responsible for paying or otherwise satisfying the Excluded Liabilities. Purchaser shall have no liability of any kind, contingent or otherwise, with respect to the Excluded Liabilities. 1.3 EFFECTIVE DATE. The Effective Date of this Agreement shall be the Closing Date. ARTICLE 2 ASSIGNMENT OF INCLUDED ASSETS 2.1 ASSIGNMENT BY SELLER. Subject to the Closing of the transaction contemplated in the Asset Purchase Agreement and subject to the terms and conditions set forth herein and in the Asset Purchase Agreement, Seller hereby assigns to Purchaser the following Included Assets (the "Assigned Assets"): (a) All Accounts Receivable (as defined in Section 1.1(a) of the Asset Purchase Agreement); 2 79 (b) The Customer Contracts (as defined in Section 1.1(c) of the Asset Purchase Agreement) listed on the Schedule of Assigned Assets attached hereto as Exhibit "A." (c) The Equipment Leases (as defined in Section 1.1(d) of the Asset Purchase Agreement) listed on the Schedule of Assigned Assets attached hereto as Exhibit "A"; (d) All Governmental Airworthiness Approvals (as defined in Section 1.1(e) of the Asset Purchase Agreement); (e) All Manufacturers' Warranties (as defined in Section 1.1(h) of the Asset Purchase Agreement); (f) The Other Assets (as defined in Section 1.1(i) of the Asset Purchase Agreement) listed on the Schedule of Assigned Assets attached hereto as Exhibit "A"; (g) The Software Licenses (as defined in Section 1.1(j) of the Asset Purchase Agreement) listed on the Schedule of Assigned Assets attached hereto as Exhibit "A"; (h) The Vendor Contracts (as defined in Section 1.1(n) of the Asset Purchase Agreement) listed on the Schedule of Assigned Assets attached hereto as Exhibit "A"; 2.2 CONSENTS TO ASSIGNMENT. Seller represents and warrants that the Assigned Assets, as reasonably required by Purchaser including without limitation the Customer Contracts, are assumable by Purchaser according to their terms. Seller shall, as a condition of the Closing, obtain all necessary consents for the assignment of the Assigned Assets as required in Section 5.2(g) of the Asset Purchase Agreement. 2.3 SELLING PARTIES' CONTINUING OBLIGATION. From and after the Closing, Selling Parties shall promptly refer all inquiries with respect to the Assigned Assets to Purchaser. In addition, Selling Parties shall execute such documents and financing statements as Purchaser may reasonably request from time to time to evidence transfer of the Assigned Assets to Purchaser, including any necessary assignments of financing statements affecting the Assigned Assets. 2.4 ASSUMPTION BY PURCHASER. Subject to all the terms and conditions of this Agreement and the Asset Purchase Agreement, Purchaser hereby accepts the assignment of the Assigned Assets and agrees to assume all of the terms, covenants, obligations and conditions imposed upon Seller in its capacity as a contracting party with respect to the Assigned Assets, except for those obligations and liabilities set forth on the Schedule of Excluded Liabilities. ARTICLE 3 ASSIGNMENT AND ASSUMPTION OF LIABILITIES 3.1 ASSIGNMENT BY SELLER. Subject to the Closing of the transaction contemplated in the Asset Purchase Agreement and subject to the terms and conditions set forth herein and in the Asset 3 80 Purchase Agreement, Seller hereby assigns to Purchaser the Assumed Liabilities listed on the Schedule of Assumed Liabilities attached hereto as Exhibit "B." 3.2 ASSUMPTION BY PURCHASER. Subject to all the terms and conditions of this Agreement and the Asset Purchase Agreement, Purchaser hereby assumes from Seller the Assumed Liabilities and agrees to assume all of the terms covenants, obligations and conditions imposed upon Seller with respect to the Assumed Liabilities. 3.3 SELLING PARTIES' CONTINUING OBLIGATION. From and after the Closing, Selling Parties shall promptly refer all inquiries with respect to the Assumed Liabilities to Purchaser. In addition, Selling Parties shall execute such documents and financing statements as Purchaser may reasonably request from time to time to evidence transfer of the Assumed Liabilities to Purchaser, including any necessary assignments of financing statements affecting the Assumed Liabilities. 3.4 AMOUNT OF ASSUMED LIABILITIES. The amount of the Assumed Liabilities shall be as set forth on the Pre-Closing Date Balance Sheet as approved by Seller and Purchaser pursuant to Section 1.2(c) of the Asset Purchase Agreement and as adjusted under the Post-Closing Accounting Adjustments. The aggregate amount of the Assumed Liabilities as of the Closing shall not exceed the amount determined in accordance with Section 1.2(c) of the Asset Purchase Agreement. 3.5 NO LIABILITY FOR EXCLUDED LIABILITIES. Selling Parties shall be responsible for paying or otherwise satisfying the Excluded Liabilities and Purchaser shall have no liability of any kind, contingent or otherwise, with respect to the Excluded Liabilities. 3.6 CONDITION TO ASSIGNMENT AND ASSUMPTION. Any obligations of Purchaser to assume the Assumed Liabilities are subject to the fulfillment (or the written waiver thereof by Purchaser) of each of the conditions precedent set forth in Section 5.2 of the Asset Purchase Agreement. Purchaser may waive any or all of the conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Purchaser of any of Purchaser's other rights or remedies, at law or in equity, if Selling Parties are in default of any of their representations, warranties, or covenants contained in the Asset Purchase Agreement. 3.7 INDEMNIFICATION. This Agreement is subject to the indemnification provisions set forth in Article 8 of the Asset Purchase Agreement. ARTICLE 4 MISCELLANEOUS PROVISIONS 4.1 ASSIGNMENT BY PURCHASER. Purchaser shall have the right to assign this Agreement and to assign its rights and delegate its duties under this Agreement, either in whole or in part, at any time and without Seller's consent. Purchaser shall give Seller written notice of any such assignment. The assignment shall neither affect or diminish any rights or duties that Seller or Purchaser may have under this Agreement. Absent an express signed written agreement between the parties to the contrary, no assignment of any of the rights or obligations under this Agreement shall result in a 4 81 novation or in any way release the Selling Parties from their obligations under this Agreement. 4.2 JOINT AND SEVERAL LIABILITY. Selling Parties and Seller shall be jointly and severally liable for the obligations of Selling Parties or Seller pursuant to this Agreement. 4.3 COSTS AND EXPENSES. Except for liabilities expressly assumed by Purchaser in this Agreement, each of the parties will bear its own expenses in connection with negotiation and the consummation of the transactions contemplated by this Agreement. Each party shall be solely responsible for its respective legal, accounting, and other out-of-pocket expenses. 4.4 GOVERNING LAW AND VENUE. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 4.13 below. 4.5 INTERPRETATION. This Agreement shall not be interpreted against a party by virtue of such party's participation in the drafting of the Agreement or any provisions herein. 4.6 AMENDMENT. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by all parties to this Agreement whose rights or obligations are affected by such amendment, modification or supplement. 4.7 INUREMENT. This Agreement shall be binding upon and inure to the benefit to the successors and/or assigns of the parties hereto. 4.8 NOTICES. (A) METHOD OF DELIVERY. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (B) ADDRESSES. Notices shall be addressed as follows: 5 82 If to Selling Parties: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Att.: Bradley P. First Fax No.: (602) 631-9005 If to Purchaser: Weber Aircraft, Inc. 2000 Weber Drive Gainesville, TX 76240 Attn.: Michel Labarre Fax No. (940) 668-4853 With a copy to: Zodiac S.A. 2, Rue Maurice Mallet 92137, Issy-les-Molineaux Cedex France Att.: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 62 With a copy to: Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No. (619) 595-1313 Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. (C) EFFECTIVENESS. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 4.9 HEADINGS. The headings of the sections of this Agreement are for the convenience of reference only, and do not form a part hereof, and in no way modify, interpret or construe the meanings of the parties. 6 83 4.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts. 4.11 WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. 4.12 SEVERABILITY. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach. 4.13 ARBITRATION. (A) GENERAL. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. (B) THIRD PARTY CONTROVERSY. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings 7 84 hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. (C) VENUE. All arbitration proceedings shall be held in San Diego, California. (D) NOTICES. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. 4.14 ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. 4.15 CONSTRUCTION. Whenever the context so requires in this Agreement, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word "person" shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate, or any other entity. 4.16 AUTHORITY OF SIGNATORIES. Each individual signing this Agreement on behalf of a corporation warrants that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, in accordance with a duly adopted resolution of the board of directors of the corporation or in accordance with the bylaws of the corporation, and that this Agreement is binding on the corporation in accordance with its terms. 4.17 ENTIRE AGREEMENT. This Agreement is one of a series of agreements executed as part of an integrated transaction described in the Asset Purchase Agreement. This Agreement, together with the Asset Purchase Agreement and with all other agreements, assignments and exhibits expressly referred to therein or herein, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Agreement. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. To the maximum extent permitted by law, each party expressly waives any right of 8 85 rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained or referenced to in this Agreement. [SIGNATURES APPEAR ON FOLLOWING PAGE] 9 86 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be executed effective as of the date first set forth above. "SELLER:" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "SIMTEC:" SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "SIMULA:" SIMULA, INC., an Arizona corporation By:/s/ James C. Dodd Printed Name: James C. Dodd Its: CFO "PURCHASER:" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michael Labarre Printed Name: Michael Labarre Its: President 10 87 EXHIBIT "A" SCHEDULE OF ASSIGNED ASSETS 1. All Accounts Receivable (as defined in Section 1.1(a) of the Asset Purchase Agreement). 2. The Customer Contracts to be assigned to and assumed by Purchaser shall consist of those Customer Contracts identified as assumed with an indication of "yes" on Schedule 1.1(c). 3. No Equipment Leases shall be assigned to and assumed by Purchaser. 4. All Governmental Airworthiness Approvals (as defined in Section 1.1(e) of the Asset Purchase Agreement). 5. All Manufacturers' Warranties (as defined in Section 1.1(h) of the Asset Purchase Agreement). 6. There are no Other Assets that will be assigned to and assumed by Purchaser. 7. The Software Licenses to be assigned and assumed by Purchaser shall consist of those Software Licenses identified as assumed with an indication of "yea" on Schedule 1.1(j). 8. The Vendor Contracts to be assigned to and assumed by Purchaser shall consist of those Vendor Contracts identified as assumed on Schedule 1.1(n). 88 EXHIBIT "B" SCHEDULE OF ASSUMED LIABILITIES Purchaser shall assume only those liabilities set forth on Schedule 0.3(e). 89 EXHIBIT "C" SCHEDULE OF EXCLUDED LIABILITIES Purchaser shall not assume any liabilities that are not specifically identified on Schedule 0.3(e), including without limitation those liabilities listed on Schedule 0.3(v), the Schedule of Excluded Liabilities. 90 Exhibit 10.40d BILL OF SALE (Section 0.3(p)(3)) This BILL OF SALE (the "Bill of Sale") is made as of this 1st day of February 2000 by and between AIRLINE INTERIORS, INC., an Arizona corporation ("Seller"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Purchaser"), with reference to the facts set forth in the Recitals below. RECITALS A. Seller and Purchaser are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement"). This Bill of Sale is being executed pursuant to Section 0.3(p)(3) of the Asset Purchase Agreement. B. Seller owns all right, title and interest to and in the following personal property (the "Personal Property"): (1) The Books and Records (as defined in Section 1.1(b) of the Asset Purchase Agreement); (2) The Included Inventories (as defined in Section 1.1(f) of the Asset Purchase Agreement); (3) The Software Licenses (as defined in Section 1.1(j) of the Asset Purchase Agreement); (4) The Supplies (as defined in Section 1.1(k) of the Asset Purchase Agreement); (5) The Tangible Personal Property (as defined in Section 1.1(l) of the Asset Purchase Agreement); and (6) The Tooling (as defined in Section 1.1(m) of the Asset Purchase Agreement). C. Section 1.1 of the Asset Purchase Agreement provides that, as a part of the sale of the 1 91 assets contemplated in the Asset Purchase Agreement, Seller shall convey to Purchaser all of its right, title and interest in and to the Personal Property. D. The parties are executing this Bill of Sale in order to convey the Personal Property from Seller to Purchaser pursuant to the provisions of the Asset Purchase Agreement. AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. INTERPRETATION. This Bill of Sale is intended to implement the terms and conditions of the Asset Purchase Agreement. In the event of a conflict between the provisions of this Bill of Sale and those of the Asset Purchase Agreement, the Asset Purchase Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement, unless the context of this Bill of Sale requires otherwise. 2. TRANSFER OF PERSONAL PROPERTY. Subject to all the terms and conditions of the Asset Purchase Agreement and this Bill of Sale, Seller does hereby give, grant, bargain, sell, transfer, set over, assign, convey, release, confirm and deliver to Purchaser, free and clear of all liens, charges and encumbrances, and Purchaser hereby accepts, all of Seller's right, title and interest in and to the Personal Property. 3. FURTHER ASSURANCES. Seller agrees, without cost to Purchaser, to execute all instruments and documents and take all actions as may be reasonably required to effectuate this Bill of Sale, including without limitation to execute all rightful oaths, assignments, powers of attorney and other documents which Purchaser shall consider desirable or necessary for vesting title to the Personal Property. 4. EFFECTIVE DATE. This Bill of Sale shall be effective as of the Closing. 5. SELLER'S WARRANTIES. (A) SELLER'S AUTHORITY. Seller represents, warrants and covenants that the persons executing this Bill of Sale on behalf of Seller have been duly authorized to do so by requisite corporate action and that this Bill of Sale shall be binding and enforceable against Seller. (B) DEFENSE OF TITLE. Seller does, for itself, its successors and assigns, covenant and agree to warrant and defend the title to the Personal Property against any and all claims and demands against the Personal Property. 6. GOVERNING LAW AND VENUE. This Bill of Sale and any interpretation hereof and the 2 92 resolution of any dispute hereunder shall be governed by the laws of the State of California. Disputes arising out of this Bill of Sale shall be arbitrated as provided in the Asset Purchase Agreement. 7. ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Bill of Sale, or any judgment based on this Bill of Sale, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. IN WITNESS WHEREOF, Seller and Purchaser have caused their duly authorized representatives to execute and deliver this Bill of Sale as of the day and year first above written. "SELLER": AIRLINE INTERIORS, INC, an Arizona corporation By: /s/ Bradley P. Forst ________________________________ Printed name: Bradley P. Forst ______________________ Its: Secretary _______________________________ "PURCHASER": WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michael LaBarre ________________________________ Printed Name: Michael LaBarre ______________________ Its: President _______________________________ 3 93 EXHIBIT 10.40e NON-COMPETITION AGREEMENT (SECTION 5.2(l)) This NON-COMPETITION AGREEMENT (the "Agreement") is made as of this 1st day of February 2000, by and between AIRLINE INTERIORS, INC., an Arizona corporation ("Seller"), SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation ("Simtec"), SIMULA TECHNOLOGIES, INC., an Arizona corporation ("STI"), SIMULA, INC., an Arizona corporation ("Simula"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Weber"), with reference to the facts set forth in the Recitals below. RECITALS A. Simula, Simtec and Seller are sometimes collectively referred to as the "Selling Parties." B. STI is an affiliate of Simula. C. Selling Parties and Weber are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement"). Pursuant to the terms and conditions of the Asset Purchase Agreement, Seller has sold the Included Assets to Seller. D. Selling Parties and Weber are also parties to that certain Assignment of Intellectual Property Of even date herewith (the "IP Assignment"). E. Simula, STI and Weber are also parties to that certain Patent License Agreement of even date herewith (the "Patent License Agreement") concerning the Shared Use Patent. F. As a material part of the transactions contemplated by the Asset Purchase Agreement, the IP Assignment, and the Patent License Agreement, Selling Parties desire to protect Weber, and Weber desires to be protected, against certain competitive activities on the part of Selling Parties and STI so that Weber will obtain the full benefit of the Included Assets, including without limitation, the Intellectual Property. G. The parties are executing this Agreement in order to memorialize their understanding concerning the foregoing. 1 94 AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals, the mutual covenants contained below in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. INTERPRETATION. This Agreement is intended to implement the terms and conditions of the Asset Purchase Agreement. In the event of a conflict between the provisions of this Agreement and those of the Asset Purchase Agreement, the Asset Purchase Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement unless the context of this Agreement requires otherwise. 2. CERTAIN DEFINITIONS. (a) BUSINESS JET MARKET. The term "Business Jet Market" shall mean the executive or business jet aircraft market. (b) COMMERCIAL AIRLINE MARKET. The term "Commercial Airline Market" shall mean the commercial airline market, which expressly includes commuter airliners. (c) CONFIDENTIAL INFORMATION. The term "Confidential Information" shall mean any information which is proprietary or unique to the Business, including without limitation, customer lists or other customer information, trade secrets, matters of a technical nature such as processes, devices, techniques, data and formulas, research subjects and results, know-how, or marketing methods, plans or strategies, financial information, or any observations, data, written plans or proposals, records or documents used by or relating to the Business, or the reasonably foreseeable business of Weber, whether or not such information was developed, devised or otherwise created in whole or in part by the efforts of Selling Parties, unless such information is a matter of public knowledge, except as a result of unauthorized disclosure to the general public by Selling Parties. (d) RESTRICTED BUSINESS. The term "Restricted Business" shall mean any business activity relating to (1) the design, development, manufacturing, marketing, distribution or sale of any passenger seats of any type or design (regardless of the technology involved) in or for the use in Commercial Airline Market in any part of the Territory and (2) the design, development, manufacturing, marketing, distribution or sale of any products utilizing the technology and inventions covered by the Shared Use Patent in the Commercial Airline Market or the Business Jet Market in any part of the Territory. (e) PERSON. The term "Person" shall mean and include an individual, a partnership, a corporation, an association, a company, a trust, a joint venture, an unincorporated organization or a governmental entity. (f) TERRITORY. The term "Territory" shall mean any territory or country in the world. 2 95 3. COVENANT NOT TO COMPETE. Subject to all the terms and conditions of this Agreement, for a period of ten (10) years commencing with the Closing Date, Selling Parties and STI covenant and agree that they shall not, directly or indirectly, either as principal, agent, manager, owner, partner, shareholder, or otherwise as a participant in any other capacity: (a) NO INVESTMENT IN RESTRICTED BUSINESS. Own, manage, operate, engage in, control, assist, give or lend funds to or otherwise finance, consult with, be employed by or an agent for, participate in, or be connected in any manner with, or acquire any ownership or equity interest in any Person involved, engaged in or participating in the Restricted Business, directly or indirectly. (b) NO SOLICITATION OF CUSTOMERS. Solicit, divert, or take away or attempt to solicit, divert or take away from Weber any of the Business, or any present customer of the Business, or any customer who does business with Weber during said period. (c) NO PRODUCT DEVELOPMENT. Design, develop, manufacture, assemble, distribute, sell, market, service, support, assist with or modify any product for use in the Restricted Business; provided, however, that the Selling Parties may retain their current repair and refurbishment business for commercial airline aircraft passenger seats and retain their current testing services business at STI. 4. NON-DISCLOSURE COVENANT. For a period of ten (10) years commencing with the Closing Date, Selling Parties and STI covenant and agree that they will not disclose, reveal, divulge or make known to any Person (other than Weber or its affiliates) any Confidential Information that relates to the Business or the reasonably foreseeable business of Weber or any of its affiliates. 5. NON-INTERFERENCE COVENANT. For a period of ten (10) years commencing with the Closing Date, Selling Parties and STI covenant and agree that they will not, whether for their own account or for the account of any other Person, directly or indirectly, (a) hire, offer to hire, induce or attempt to induce any Person who is an employee of Weber or employ such individual for a period of six (6) months after the Person terminates employment with Weber; or (b) solicit any supplier to Weber to purchase or distribute information, products or services of or on behalf of Selling Parties and/or STI that are competitive with the information, products or services provided by Weber. 6. PERMITTED COMPETITION. Notwithstanding anything in this Agreement to the contrary, it is agreed that Selling Parties and STI may (a) use the technology covered by the Shared Use Patent to design, develop, manufacture, market, distribute or sell passenger seats for use in the military aviation business or executive helicopter and the general aviation markets, as more fully provided in the Patent License Agreement, (b) design, develop, manufacture, market, distribute or sell any products not utilizing the technology covered by the Shared Use Patent for use in the Business Jet Market, and (c) complete a certain amended purchase order dated December 21, 1999 issued to STI by Britax Contours for four hundred and seventy (470) 16G load limiting energy absorber devices for installation in said customer's commercial airline aircraft passenger seats. it is agreed that said Britax order shall be completed no later than september 30, 2000. STI shall be solely responsible for resolving all warranty and other claims that may arise out of said Britax order. STI shall not accept any additional follow-up orders for such devices from Britax Contours. 3 96 7. REASONABLENESS OF RESTRICTIONS; REMEDIES. Selling Parties and STI have carefully read all of the terms and conditions of this Agreement and have given careful consideration to the covenants and restrictions imposed upon them herein, and agree that the same are necessary for the reasonable and proper protection of Weber and the Business and have been separately bargained for and agree that Weber has been induced to enter into the Asset Purchase Agreement and the Patent License Agreement by the representations of Selling Parties and STI that they will abide by and be bound by each of the covenants and restrictions that apply to them. Selling Parties and STI further acknowledge that each and every one of the covenants and restrictions contained in this Agreement is reasonable with respect to the subject matter, length of time and area embraced therein, and agree that said covenants and restrictions shall be operative during the full period or periods herein mentioned and throughout areas herein described. 8. SEVERABILITY AND ENFORCEABILITY. The covenants contained in this Agreement shall be construed as if each covenant is divided into separate and distinct covenants with respect to the Business, each capacity in which Selling Parties and STI are prohibited from competing, and each part of the Territory. Each such covenant shall constitute a separate and several covenant distinct from all other such covenants. Each of the parties hereto recognizes that the territorial restrictions contained herein are properly required for the adequate protection of Weber. In the event that any covenant or any provision contained in this Agreement shall for any reason be deemed invalid, illegal, or unenforceable in any respect, any such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforced provision has been limited or modified (consistent with its general intent) to the extent necessary so that it shall be valid, legal and enforceable. If it shall not be possible to so limit or modify such invalid or illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein, and the parties will use their best efforts to substitute a valid, legal, and enforceable provision which, insofar as practicable, implements the purpose and intention thereof. 9. BREACH. Each provision of this Agreement to be performed by Selling Parties and STI shall be deemed both a covenant and a condition and shall be a material consideration for the performance of Weber's obligations under the Asset Purchase Agreement and the Patent License Agreement. Any breach hereof by Selling Parties and STI shall be deemed a material default under the Asset Purchase Agreement, the Patent License Agreement, and this Agreement. 10. REMEDIES. Selling Parties, STI and Weber acknowledge that (1) the covenants and the restrictions contained in this Agreement are necessary, fundamental and are required for the protection of Weber; (2) such covenants relate to matters which are of a special, unique and extraordinary character that gives each of such covenants a special, unique, and extraordinary value; and (3) a breach of any covenants or any other provision of this Agreement will result in irreparable harm and damages to Weber which cannot be adequately compensated by a monetary reward. Accordingly, it is expressly agreed that in addition to all other remedies available at law or in equity, Weber shall be entitled to the immediate remedy of a temporary restraining order, preliminary injunction, or such other form of injunctive or equitable relief as maybe used by any court of competent jurisdiction to restrain and enjoin Selling Parties and STI from breaching any such covenant or provision or to specifically enforce the provisions hereof. All rights, remedies, 4 97 undertakings, obligations, options, covenants, conditions and agreements contained in this Agreement or provided by law shall be cumulative and no one of them shall be exclusive of any other. A party may pursue any one or more of its rights, options or remedies hereunder or may seek damages or specific performance in the event of the other party's breach hereunder, or may pursue any other remedy by law or equity, whether or not stated in this Agreement. 11. COSTS AND EXPENSES. Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement. Each party shall be solely responsible for its respective legal, accounting, and other out-of-pocket expenses. 12. GOVERNING LAW AND VENUE. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 21. 13. INTERPRETATION. This Agreement shall not be interpreted against a party by virtue of such party's participation in the drafting of the Agreement or any provisions herein. 14. AMENDMENT. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by all parties to this Agreement whose rights or obligations are affected by such amendment, modification or supplement. 15. INUREMENT. This Agreement shall be binding upon and inure to the benefit to the successors and/or assigns of the parties hereto. 16. NOTICES. (a) METHOD OF DELIVERY. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (b) ADDRESSES. Notices shall be addressed as follows: 5 98 If to Seller: Airline Interiors, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to Simula: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to Simtec: Simula Transportation Equipment Corporation 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to STI: Simula Technologies, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to Weber: Weber Aircraft, Inc. 2000 Weber Drive Gainesville, Texas 76240 Attn: Michel Labarre Fax: (940) 668-4853 With copies to: Zodiac, S.A. 2, rue Maurice Mallet 92137, Issy-les-Moulineaux Cedex France Attn: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 62
6 99 Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No.: (619) 595-1313
Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. It is agreed that separate notices need not be sent to Simtec. Notices sent to Simula shall be deemed to have been sent to Simtec. (c) EFFECTIVENESS. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 17. HEADINGS. The headings of the sections of this Agreement are for the convenience of reference only, and do not form a part hereof, and in no way modify, interpret or construe the meanings of the parties. 18. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts. 19. WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. 20. SEVERABILITY. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any 7 100 other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach. 21. ARBITRATION. (a) GENERAL. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. (b) THIRD-PARTY CONTROVERSY. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. (c) VENUE. All arbitration proceedings shall be held in San Diego, California. (d) NOTICES. Notice of the demand for arbitration shall be filed in writing with the other parties to this Agreement and with the American Arbitration Association., it being understood, however, that notices intended for the Selling Parties need only be given to Simula and that separate notices need not be given to AI or Simula. 22. ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. 8 101 23. CONSTRUCTION. Whenever the context so requires in this Agreement, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word "person" shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate, or any other entity. 24. FURTHER ASSURANCES. Each party to this Agreement shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Agreement. 25. AMENDMENTS. No addition to or modification of any provision contained in this Agreement shall be effective unless fully set forth in a writing signed by all parties. 26. AUTHORITY OF SIGNATORIES. Each individual signing this Agreement on behalf of a corporation warrants that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, in accordance with a duly adopted resolution of the board of directors of the corporation or in accordance with the bylaws of the corporation, and that this Agreement is binding on the corporation in accordance with its terms. 27. ENTIRE AGREEMENT. This Agreement is one of a series of agreements executed as part of an integrated transaction described in the Asset Purchase Agreement. This Agreement, together with the Asset Purchase Agreement and with all other agreements, assignments and exhibits expressly referred to therein or herein, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Agreement. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. To the maximum extent permitted by law, each party expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained or referenced to in this Agreement. [SIGNATURES APPEAR ON FOLLOWING PAGE] 9 102 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute and deliver, this Non-Competition Agreement as of the day and year first above written. "SELLER" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "SIMTEC" SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its Secretary "SIMULA" SIMULA, INC., an Arizona corporation By: /s/ James C. Dodd Printed Name: James C. Dodd Its: CFO "STI" SIMULA TECHNOLOGIES, INC., an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "WEBER" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michel Labarre Michel Labarre President 10 103 PATENT LICENSE AGREEMENT (SECTION 6.6) This PATENT LICENSE AGREEMENT (the "Agreement") is made as of the 1st day of February 2000 by and between WEBER AIRCRAFT, INC., a Delaware corporation ("Licensor"), and SIMULA, INC., an Arizona corporation ("Licensee"), and SIMULA TECHNOLOGIES, INC., an Arizona corporation ("STI"), with reference to the following Recitals: RECITALS A. Licensor and Licensee, among others, are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement") and that certain Non-Competition Agreement of even date herewith (the "Non-Compete Agreement"). B. Licensee is the inventor and the former owner of United States Patent No. 5,730,492 entitled "16 G Load-Limiting Seat Technology" issued on March 24, 1998 (the "Patent"). The Patent is referred to as the "Shared Use Patent" in the Asset Purchase Agreement. C. Pursuant to the terms and conditions of the Asset Purchase Agreement, Licensee has sold the Patent, and has assigned all of its right, title and interest in and to the Patent to Licensor. Section 6.6 of the Asset Purchase Agreement provides that Licensor shall grant Licensee and its affiliates a license to utilize the Patent in the Included Markets (as defined below). D. STI is an affiliate of Licensee. E. The parties are executing this Agreement in order to memorialize their understanding concerning the foregoing matters. AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the sale of the Patent to Licensor, the above Recitals, the mutual covenants contained below in this Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 104 1. INTERPRETATION. This Agreement is intended to implement Section 6.6 and other provisions of the Asset Purchase Agreement referring to the licensing of the Patent by Licensee. In the event of a conflict between the provisions of this Agreement and those of the Asset Purchase Agreement, this Agreement shall control. In the event of a conflict between this Agreement and the Non-Compete Agreement, the Non-Compete Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement, unless the context of this Agreement requires otherwise. 2. GRANT. Subject to all the terms and conditions of this Agreement, including without limitation Section 3 below, Licensor hereby grants, and Licensee and hereby accepts, a perpetual, worldwide, exclusive license (the "License") to make, use, market and sell products utilizing the technology and inventions set forth in the Patent. The grant of the License is extended only to Licensee and not to STI or any other affiliates of Licensee. Notwithstanding the foregoing, it is agreed that STI shall have the right to use the technology covered by the Patent as provided in Section 6 of the Non-Competition Agreement. 3. SCOPE. The scope of the License shall be limited to the military aviation, executive and business helicopter and general aviation aircraft markets anywhere in the world (collectively, the "Included Markets"). The Included Markets shall not include either the Business Jet Market (as defined in the Non-Compete Agreement) or the Commercial Airline Market (as defined in the Non-Compete Agreement) (collectively, the "Excluded Markets"). Licensee shall not design, develop, manufacture, market, distribute or sell any products utilizing the technology or inventions covered by the Patent in, or for use in, the Excluded Markets. Licensor shall not design, develop, manufacture, market, distribute or sell any products utilizing the technology or inventions covered by the Patent in, or for use in, the Included Markets. 4. ROYALTIES. The License shall be royalty free and Licensee shall not be obligated to make any payments to Licensor for the utilization of the technology and inventions covered by the Patent. 5. OWNERSHIP AND LICENSE OF IMPROVEMENTS. The parties agree that all enhancements or betterments of the Patent or the technology set forth in the Patent (collectively, the "Improvements") developed or acquired by Licensee, its employees or agents during the term of this Agreement shall be considered a part of the technology covered by the Patent and shall be owned solely by Licensor. Licensee, its employees and agents shall not have any right, title or interest in or to any Improvement; provided, however, that all Improvements shall be licensed to Licensee subject to all the same terms and conditions of this Agreement, including without limitation Section 3 and Section 4 above. None of Licensee, its employees or agents shall, at any time during or after the term of this Agreement, dispute or contest, directly or indirectly, Licensor's exclusive right and title to the Improvements. Licensee agrees (a) to take, or cause to be taken, all actions, (b) to do, or cause to be done, all things, and (c) to execute, or cause to be executed, any documents, instruments or conveyances of any kind which may be necessary, proper or advisable (y) to evidence Licensor's 2 105 sole right, title and interest in and to any Improvement, or (z) to register such Improvement in Licensor's name. 6. INFRINGEMENT/ LITIGATION. (A) THIRD PARTY INFRINGEMENT. During the term of this Agreement, each party agrees to notify the other promptly in the event such party becomes aware of any infringement or potential infringement of the Patent by a third party. Licensor shall have the sole and exclusive right to pursue, at its expense and in its own name, all actions for damages or equitable relief against third parties who infringe the Patent. Licensee shall not pursue independently on any lawsuits or causes of action for infringement of the Patent unless its licensed use is infringed and Licensor elects not to enforce the License after having received notice of such infringement. Licensor shall not be obligated to pursue any action for infringement of the Patent, and Licensor may settle or otherwise dispose of any action brought by it in any manner it sees fit, including without limitation consenting to the entry of any judgement or binding judicial determination, notwithstanding that such entry of judgement or binding judicial determination might impair the validity of or materially adversely affect the Patent or any claims thereof and provided it is not detrimental to Licensee's rights hereunder. Licensor shall be entitled to all money or property awarded or paid during or after the term of this Agreement from any judgment or settlement resulting from any action or counterclaim brought by Licensor concerning the Patent. (B) PATENT DEFENSE. In the event any action or proceeding is filed against Licensor or Licensee alleging that the Patent is invalid or infringes on any other patent or intellectual property right of any third party, Licensor may, but shall not be obligated to defend such action or proceeding at its sole expense. If Licensor elects to defend such action or proceeding, Licensee agrees to cooperate fully with Licensor and its representatives in the defense of any such action. Licensor may settle or otherwise dispose of any action brought by it in any manner it sees fit, including without limitation consenting to the entry of any judgement or binding judicial determination, notwithstanding that such entry of judgement or binding judicial determination might impair the validity of or materially adversely affect the Patent or any claims thereof. 7. TERM. This Agreement shall become effective on the Effective Date and shall terminate automatically without notice in the event that (a) Licensor elects to not further maintain the Patent (in which case the License shall be considered fully paid-up and irrevocable), or (b) Licensee (i) designs, develops, manufactures, markets, distributes or sells any products utilizing the technology or inventions covered by the Patent in, or for use in, the Excluded Markets, other than specifically allowed under this Agreement, (ii) attempts to assign or transfer its rights under this Agreement or the License, (iii) attempts to sublicense the technology and inventions covered by the Patent in contravention of Section 8 below, (iv) fails to maintain insurance as required under this Agreement, or (v) files a petition in bankruptcy or is adjudicated bankrupt or insolvent, or makes an assignment for the benefit of creditors, or an arrangement pursuant to any bankruptcy law, or discontinues or dissolves its business, or if a receiver is appointed for the Licensee or for the Licensee's business. 3 106 8. ASSIGNMENT. Licensee shall not be entitled to assign its rights under this Agreement or to sublicense the technology or the inventions covered by the Patent, except as permitted in this Section 8. Notwithstanding anything in this Agreement to the contrary, it is agreed that (a) Licensee may sublicense the License to a Simula Affiliate (as defined below) subject to all the terms and conditions of this Agreement and (b) Licensee (or a permitted sublicensee), may assign the License (or a permitted sublicense) in conjunction with the sale of the business of a Simula Affiliate to whom the License has been sublicensed, provided Licensee first obtains Licensor's prior written consent to such assignment. Licensor's consent to such assignment of the License (or a permitted sublicense) in conjunction with the sale of the business of a Simula Affiliate shall not be unreasonably withheld. The term "Simula Affiliate" shall mean any corporation which is owned by, controlled by, or under common control of Simula, Inc. 9. INSURANCE. As a material inducement to Licensor to grant the License, Licensee agrees to provide and maintain throughout the term of this Agreement, at its own cost and expense, Comprehensive General Liability insurance including Blanket Contractual Liability and Broad Form Property damage coverage in an amount not less than Ten Million Dollars ($10,000,000) combined single limit, per occurrence ("CGL Insurance") endorsed to include products liability coverage, insuring the Licensee, its officers, directors, agents and employees against injury, harm or damage, whether to persons or property, arising out of Licensee's marketing, selling, or using products utilizing the technology or the inventions covered by the Patent, and designating Licensor as an additional named insured. All CGL Insurance shall be primary and be required to respond and pay prior to any other available coverage. Not later than ten (10) days upon written request by Licensor to Licensee, Licensee shall furnish evidence of such coverage as well as notice of renewal, cancellation or change in such coverage to Licensor 10. INDEMNIFICATION. In addition to any and all duties of Licensee set forth in the Asset Purchase Agreement and this Agreement and as material inducement to Licensor to grant the License to Licensee, Licensee hereby agrees to defend, indemnify, and hold harmless Licensor against all Claims (as defined below) and any costs, damages, liabilities, losses, lawsuits, and expenses (including without limitation interest, penalties and reasonable attorneys' fees) arising out of or relating to such Claims. For the purpose of this Section 10, the term "Claims" shall mean any costs, expenses, claims and liabilities (including without limitation reasonable attorneys' fees) arising from or pertaining to Licensee's marketing or selling of products or devices utilizing the technology or inventions covered by the Patent. 11. COSTS AND EXPENSES. Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement. Each party shall be solely responsible for its respective legal, accounting, and other out-of-pocket expenses. 12. GOVERNING LAW AND VENUE. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and 4 107 subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 21. 13. INTERPRETATION. This Agreement shall not be interpreted against a party by virtue of such party's participation in the drafting of the Agreement or any provisions herein. 14. AMENDMENT. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by all parties to this Agreement whose rights or obligations are affected by such amendment, modification or supplement. 15. INUREMENT. This Agreement shall be binding upon and inure to the benefit to the successors and/or assigns of the parties hereto. 16. NOTICES. (A) METHOD OF DELIVERY. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (B) ADDRESSES. Notices shall be addressed as follows: If to Licensee: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to STI: Simula Technologies, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 5 108 If to Licensor: Weber Aircraft, Inc. 2000 Weber Drive Gainesville, Texas 76240 Attn: Michel Labarre Fax: (940) 668-4853 With copies to: Zodiac, S.A. 2, rue Maurice Mallet 92137, Issy-les-Moulineaux Cedex France Attn: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 10 Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No.: (619) 595-1313 Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. It is agreed that separate notices need not be sent to Simtec. Notices sent to Simula shall be deemed to have been sent to Simtec and STI. (C) EFFECTIVENESS. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 17. HEADINGS. The headings of the sections of this Agreement are for the convenience of reference only, and do not form a part hereof, and in no way modify, interpret or construe the meanings of the parties. 18. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts. 6 109 19. WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of any term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. 20. SEVERABILITY. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach. 21. ARBITRATION. (A) GENERAL. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. (B) THIRD PARTY CONTROVERSY. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. 7 110 (C) VENUE. All arbitration proceedings shall be held in San Diego, California. (D) NOTICES. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. 22. ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. 23. CONSTRUCTION. Where appropriate in this Agreement, words in the singular shall include the plural, and words in the masculine shall include the feminine. 24. AUTHORITY OF SIGNATORIES. Each individual signing this Agreement on behalf of a corporation warrants that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, in accordance with a duly adopted resolution of the board of directors of the corporation or in accordance with the bylaws of the corporation, and that this Agreement is binding on the corporation in accordance with its terms. 25. ENTIRE AGREEMENT. This Agreement is one of a series of agreements executed as part of an integrated transaction described in the Asset Purchase Agreement. This Agreement, together with the Asset Purchase Agreement and with all other agreements, assignments and exhibits expressly referred to therein or herein, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Agreement. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. To the maximum extent permitted by law, each party expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained or referenced in this Agreement. 26. CAPACITY OF STI. STI is not acquiring any rights in the Patent or the License by virtue of this Agreement. STI is executing this Agreement for the limited purpose of confirming its agreement with the foregoing. [SIGNATURES APPEAR ON FOLLOWING PAGE] 8 111 IN WITNESS WHEREOF, the parties hereto have caused this Patent License Agreement to be executed effective as of the date set forth above. "LICENSEE:" SIMULA, INC., an Arizona corporation By:/s/ James C. Dodd Printed Name: James C. Dodd Its: CFO "STI" SIMULA TECHNOLOGIES, INC., an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "LICENSOR:" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michael Labarre Printed Name: Michael Labarre Its: President 9 112 Exhibit 10.40g ASSIGNMENT OF INTELLECTUAL PROPERTY (Section 5.2(j)) This ASSIGNMENT OF INTELLECTUAL PROPERTY (the "Assignment") is made as of the 1st day of February 2000, by and between AIRLINE INTERIORS, INC., an Arizona corporation, SIMULA, INC., an Arizona corporation (collectively the "Assignors"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Assignee"), with reference to the facts set forth in the Recitals below. RECITALS A. Assignors and Assignee are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement"). This Agreement is being executed pursuant to Section 5.2(j) of the Asset Purchase Agreement. B. Simula, Inc. owns all right, title and interest in and to United States Patent No. 5,730,492 entitled " Load-Limiting Seat" issued March 24, 1998 (the "Patent"). Airline Interiors, Inc. owns all right, title and interest to and in the remaining intellectual property The Patent and the remaining intellectual property are collectively referred to as the "Intellectual Property," and is defined more fully in Section 1.1(g) of the Asset Purchase Agreement and listed in the Schedule of Intellectual Property attached hereto as Exhibit "A." C. Section 1.1(g) of the Asset Purchase Agreement provides that, as a part of the sale of the assets contemplated in the Asset Purchase Agreement, Assignors shall assign to Assignee all of their right, title and interest in and to the Intellectual Property. D. The parties are executing this Assignment in order to memorialize their understanding concerning the assignment of the Intellectual Property. 1 113 AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties agree as follows: 1. INTERPRETATION. This Assignment is intended to implement the terms and conditions of the Asset Purchase Agreement. In the event of a conflict between the provisions of this Assignment and those of the Asset Purchase Agreement, the Asset Purchase Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement, unless the context of this Assignment requires otherwise. 2. TITLE TO INTELLECTUAL PROPERTY. Assignors own all right, interest and title, legal and equitable, as to the (a) the Intellectual Property, (b) all intellectual property rights (the "Associated Rights") associated with such Intellectual Property in the United States and in all foreign countries throughout the world (including any reissues, renewals, divisions continuations, or foreign counterparts of such Intellectual Property), (c) all causes of action, claims, damages and other rights (the "Ownership Rights") arising out of or relating to the Intellectual Property or ownership thereof, including but not limited to any and all claims for current or past infringement and the right to sue therefor, and (d) all goodwill (the "Goodwill") associated with or related to the Intellectual Property. Assignors have the right to use, free and clear of claims or rights of others, the Intellectual Property, the Associated Rights the Ownership Rights and the Goodwill and the same are freely transferable by Assignors. Assignors have not entered into any license agreement or similar agreement that would entitle any other person than Assignors to use the Intellectual Property, the Associated Rights the Ownership Rights and the Goodwill. 3. NO INFRINGEMENT. Assignors are not aware, to the best of their knowledge, of any infringement by others of Assignors' proprietary rights in the Intellectual Property, the Associated Rights, the Ownership Rights and the Goodwill, nor of any other current unauthorized use by other persons. There are no claims or demands of any other person pertaining to the Intellectual Property and no proceedings have been instituted, or are pending or threatened, which challenge Assignors' right, title or interest to and in the Intellectual Property, the Associated Rights the Ownership Rights and the Goodwill. Simula, Inc. has paid all maintenance fees required to be paid in order to keep the Patent in effect. The Patent is in full force and effect. 4. ASSIGNMENT BY ASSIGNORS. Subject to all of the terms and conditions of the Asset Purchase Agreement and this Assignment, Assignors hereby assign to Assignee all of Assignors' right, title and interest to and in the following: (a) the Intellectual Property, (b) Associated Rights , (c) all Ownership Rights arising out of or relating to the Intellectual Property or ownership thereof, including but not limited to any and all claims for current or past infringement and the right to sue therefor, and (d) the Goodwill associated with or related to the Intellectual Property. 2 114 5. ACCEPTANCE BY ASSIGNEE. Subject to all the terms and conditions of the Asset Purchase Agreement and this Assignment, Assignee hereby accepts the assignment of the Intellectual Property, the Associated Rights and the Ownership Rights. 6. FURTHER ASSURANCES. Assignors agree, without cost to Assignee, to execute all instruments and documents and take all actions as may be reasonably required to effectuate this Assignment, including without limitation to execute all rightful oaths, assignments, powers of attorney and other documents which Assignee shall consider desirable or necessary for (a) vesting title to the Intellectual Property, the Goodwill, the Associated Rights and the Ownership Rights in Assignee, or (b) for registering such rights with governmental authorities in Assignee's name in the United States or worldwide. 7. EFFECTIVE DATE. This Assignment shall be effective as of the Closing. 8. BINDING EFFECT. This Assignment shall be binding upon, and inure to the benefit of the respective successors and assignees of Assignee and Assignors. 9. GOVERNING LAW AND VENUE. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 16 below. 10. INTERPRETATION. This Agreement shall not be interpreted against a party by virtue of such party's participation in the drafting of the Agreement or any provisions herein. 11. AMENDMENT. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by all parties to this Agreement whose rights or obligations are affected by such amendment, modification or supplement. 12. INUREMENT. This Agreement shall be binding upon and inure to the benefit to the successors and/or assigns of the parties hereto. 13. NOTICES. (a) METHOD OF DELIVERY. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining 3 115 evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (B) ADDRESSES. Notices shall be addressed as follows: If to Assignors: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst Fax No.: (602) 631-9005 If to Assignee: Weber Aircraft, Inc. 2000 Weber Drive 5 Gainesville, TX 76240 Attn: Michel Labarre Fax No. (940) 668-4853 With a copy to: Zodiac S.A. 2, Rue Maurice Mallet 92137, Issy-les-Molineaux Cedex France Attn: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 10 With a copy to: Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No. (619) 595-1313 Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. Notices sent to Simula, Inc. shall be deemed to have been sent to Airline Interiors, Inc. (C) EFFECTIVENESS. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices 4 116 shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 14. HEADINGS. The headings of the sections of this Agreement are for the convenience of reference only, and do not form a part hereof, and in no way modify, interpret or construe the meanings of the parties. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts. 16. WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. 17. SEVERABILITY. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach. 18. ARBITRATION. (a) GENERAL. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. 5 117 (b) THIRD PARTY CONTROVERSY. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. (c) VENUE. All arbitration proceedings shall be held in San Diego, California. (d) NOTICES. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. 19. ATTORNEYS' FEES. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. 20. CONSTRUCTION. Whenever the context so requires in this Agreement, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word "person" shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate, or any other entity. 21. AUTHORITY OF SIGNATORIES. Each individual signing this Agreement on behalf of a corporation warrants that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, in accordance with a duly adopted resolution of the board of directors of the corporation or in accordance with the bylaws of the corporation, and that this Agreement is binding on the corporation in accordance with its terms. 6 118 22. ENTIRE AGREEMENT. This Agreement is one of a series of agreements executed as part of an integrated transaction described in the Asset Purchase Agreement. This Agreement, together with the Asset Purchase Agreement and with all other agreements, assignments and exhibits expressly referred to therein or herein, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Agreement. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. To the maximum extent permitted by law, each party expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained or referenced to in this Agreement. [SIGNATURES APPEAR ON FOLLOWING PAGE] 7 119 IN WITNESS WHEREOF, Assignors and Assignee have executed this Assignment of Intellectual Property as of the date first above written. "ASSIGNOR:" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Bradley P. Forst ___________________________ Printed Name: Bradley P. Forst Its: Secretary "ASSIGNOR:" SIMULA, INC., an Arizona corporation By:/s/ James C. Dodd _________________________ Printed Name: James C. Dodd Its: CFO "ASSIGNEE:" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michael Labarre ___________________________ Printed Name: Michael Labarre Its: President 8 120 EXHIBIT "A" SCHEDULE OF INTELLECTUAL PROPERTY Trademarks, Tradenames, and Service Marks - Common Law Trademark "AIRLINE INTERIORS' (Corporate Name) - Common Law Trademark "AIRLINE INTERIORS" plus design (Corporate Logo) - Common Law Trademark "AI-1000" for Tourist Class Airplane Seats - Common Law Trademark "AI-2000" for Business Class Airplane Seats Patent Concepts or Ideas - United States Patent No. 5,730,492 entitled "16 G Load-Limiting Seat Technology" issued March 24, 1998 (the "Patent") - All concepts, technology and inventions set forth in the Patent Copyrights - Logo "AIRLINE INTERIOR" 9 121 Exhibit 10.40h TRANSITION SUPPORT AGREEMENT (Section 7.9) This TRANSITION SUPPORT AGREEMENT (the "Agreement") is made as of the 1st day of February 2000 by and between AIRLINE INTERIORS, INC., an Arizona corporation ("AI"), SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation ("Simtec"), SIMULA, INC., an Arizona corporation ("Simula"), and WEBER AIRCRAFT, INC., a Delaware corporation ("Weber"), with reference to the following Recitals: RECITALS A. Simula is the sole shareholder of Simtec, which is in turn the sole shareholder of AI. AI, Simula and Simtec are sometimes collectively referred to herein as the "Selling Parties." B. AI is engaged in the business (the "Business") of manufacturing and marketing new aircraft passenger seats. AI operates its main manufacturing and service facility (the "Poway Facility") for the Business in Poway, California. C. Weber is also engaged in the business of manufacturing and marketing new aircraft passenger seats. Weber is headquartered and maintains a manufacturing facility ("Weber's Facility") in Gainesville, Texas. D. Selling Parties and Weber are parties to that certain Asset Purchase Agreement dated December 24, 1999, as amended (the "Asset Purchase Agreement"). E. Pursuant to the Asset Purchase Agreement, AI has sold to Weber certain assets, which are defined in the Asset Purchase Agreement as the "Included Assets." The Included Assets are substantially all the assets currently used by AI in connection with the Business. F. This Agreement is being executed pursuant to Section 7.9 of the Asset Purchase Agreement, which provides that AI will assist Weber in the orderly relocation of the Business from the Poway Facility to Weber's Facility after the Closing. G. The parties are executing this Agreement in order to memorialize their understanding concerning the foregoing matters. 122 AGREEMENT NOW, THEREFORE, in consideration of the Asset Purchase Agreement, the above Recitals, the mutual covenants contained below in this Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 INTRODUCTORY MATTERS 1.1 Interpretation. In the event of a conflict between the provisions of this Agreement and those of the Asset Purchase Agreement, this Agreement shall control. Terms with initial capital letters are defined terms which shall have the respective meanings given them in the Asset Purchase Agreement, unless the context of this Agreement requires otherwise. 1.2 Certain Definitions. (a) AI's Transition Team. The term "AI's Transition Team" shall have the meaning given it in Section 1.4 below. (b) AT Sublease. The term "AT Sublease" shall have the meaning given it in Section 4.1(a) below. (c) Covered Claims. (1) The term "Covered Claims" shall mean all liabilities (including without limitation reasonable attorneys' fees) arising out of or pertaining to any claim (other than an Excluded Claim) arising out of acts or circumstances occurring or existing before or after the Closing which may be asserted at any time against Weber: (i) By any person who was employed by AI before or after the Closing, including without limitation claims based on employment discrimination, workers compensation, unpaid wages, salaries or benefits, personal injury, sexual harassment, termination of employment and payments required under the WARN Act in laying off its employees employed in the Poway Facility; (ii) By any governmental agency based on or arising out of AI's alleged failure to comply with the WARN Act in laying off its employees employed in the Poway Facility; (iii) By the landlord under the Poway Lease for any alleged breach of the Poway Lease at any time (except as otherwise provided in Section 3.2 below with respect to damage or destruction caused by the negligence or willful misconduct of Weber); 2 123 (iv) By any third party arising out of the use or occupancy of the Poway Facility; or (v) By the subtenant under the AT Sublease. (2) The term Covered Claims shall not include the Excluded Claims. Notwithstanding anything in this Agreement to the contrary, it is agreed that the Covered Claims shall, however, include claims that may be asserted by the Temporary Personnel for injuries that occur after the Closing which are covered by worker's compensation insurance, unless such claims are Excluded Claims. (d) Excluded Claims. The term "Excluded Claims" shall mean (1) any claims asserted after the Closing by Weber's Permanent Hires with respect to acts or omissions of Weber in its capacity as the new employer of Weber's Permanent Hires; (2) any claims asserted after the Closing by the Temporary Personnel for sexual harassment or other employment law violations by Weber's employees, or personal injury resulting from the gross negligence or willful misconduct of Weber; (3) any claims by the landlord under the Poway Lease for any damage or destruction of the Poway Facility caused by the negligence or willful misconduct of Weber; and (4) any claims by any third party arising out of Weber's use or occupancy of the Poway Facility during the Transition Period in violation of the subject lease. (e) Prohibited Transactions. The term "Prohibited Transactions" shall have the meaning given it in Section 3.4 below. (f) Rent. The term "Rent" shall have the meaning given it in Section 4.1(a) below. (g) Termination Notice. The term "Termination Notice" shall have the meaning given it in Section 1.2(j) below. (h) Temporary Personnel. The term "Temporary Personnel" shall have the meaning given it in Section 2.1(b) below. (i) Temporary Personnel Costs. The term "Temporary Personnel Costs" shall have the meaning given it in Section 2.1(b) below. (j) Transition Period. The term "Transition Period" shall mean a period of time following the Closing during which Weber will operate in the Poway Facility pursuant to this Agreement in order to prepare the Business for relocation to Weber's Facility. The Transition Period will begin immediately after the Closing and end when Weber vacates the Poway Facility, it being agreed, however, that the Transition Period shall not extend beyond July 31, 2000. Weber shall give AI written notice (the "Termination Notice") of when Weber has vacated the Poway Facility. The last day of the Transition Period shall be the day on which AI receives the Termination Notice from Weber. 3 124 (k) Weber's Permanent Hires. The term "Weber's Permanent Hires" shall have the meaning given it in Section 2.1(a) below. (l) Weber's Transition Team. The term "Weber's Transition Team" shall have the meaning given it in Section 2.1 (b) below. 1.3 Parties' Intent. Initially, the parties anticipated that Weber would continue manufacturing Products in the Poway Facility during the Transition Period. Weber no longer plans to conduct manufacturing operations in the Poway Facility after the Closing. Instead, after the Closing, Weber anticipates that it will promptly relocate and transfer the Business and all the Included Assets from the Poway Facility to Weber's Facility. During the Transition Period, Weber expects to shut down the Business in preparation for its immediate relocation to Weber's Facility. Selling Parties shall assist Weber in relocating the Business and Weber will reimburse Selling Parties for certain expenses related thereto, as more fully provided below. All decisions affecting the Business shall be made by Weber. Subject to all the provisions of this Agreement, AI shall perform the Services in the manner specified in this Agreement in order to meet the day-to-day operational requirements of the Business during the Transition Period, as well as the requirements for an orderly relocation of the Business to Weber's Facility. AI shall not engage in any Prohibited Transactions without Weber's prior written approval. 1.4 Scope of Services. Using the Temporary Personnel, AI's Transition Team, Simula's corporate MIS support staff in Phoenix, AZ and AI's computer and telephone systems, and other equipment of AI in the Poway Facility, Selling Parties shall provide to Weber the administrative and operational support services (the "Services") reasonably required to cease manufacturing the Products in the Poway Facility and to move the Business and the Included Assets in an orderly manner to Weber's Facility. The specific Services to be provided by Simula and AI are listed on the Schedule of Services attached hereto as Exhibit "A" and elsewhere in this Agreement. Weber shall exercise reasonable care and supervision in assigning tasks to be performed by the Temporary Personnel. Before the Closing, Selling Parties shall appoint a facilities manager and a transition manager (collectively, "AI's Transition Team") to manage the Poway Facility after the Closing and to coordinate the performance of the Services with Weber's Transition Team. AI shall pay the cost of AI's Transition Team. AI's Transition Team shall not be part of the Temporary Personnel. Weber shall inform and consult with AI's Transition Team on a frequent basis during the Transition Period. AI shall not undertake any other business activities or ventures in its Poway Facility or elsewhere which would prevent AI from performing the Services. No compensation shall be required to be paid to Selling Parties for providing the Services except as provided in Article 4 below. 1.5 Mutual Cooperation. The parties' respective Transition Teams shall cooperate with one another and provide services to one another that do not interfere with their respective primary duties as provided in this Section 1.5. Weber's Transition Team's primary duties shall be to support Weber. AI's Transition Team's primary duties shall be to support AI. As part of the cooperation contemplated in this Section 1.5, it is agreed that Greg Wallick and Thomas Nobles, who will be 4 125 assigned as Temporary Personnel to Weber's Transition Team, will provide certain certification and DIMR Services for the benefit of Selling Parties. The parties shall also cooperate with one another on (1) security and lock changing matters relating to the Poway Facility and (2) the copying of AI's business records. ARTICLE 2 PERSONNEL MATTERS 2.1 Weber's Transition Team. (a) Weber's Permanent Hires. Prior to the Closing, Weber shall identify those employees (the "Weber's Permanent Hires") of AI whom Weber desires to hire to work in the Poway Facility (or elsewhere) during the Transition Period and thereafter. As of the Closing, Weber's Permanent Hires shall cease to be employees of AI and shall become employees of Weber. At that time, Weber shall be solely responsible for paying all salaries, wages and benefits of Weber's Permanent Hires in accordance with applicable law. Selling Parties shall assist and cooperate with the transition of Weber's Permanent Hires from AI's payroll to the payroll and benefits systems of Weber. Before the Closing, Weber shall give Selling Parties notice of each offer of permanent employment made to AI's employees and the terms thereof, whether accepted or not. (b) Temporary Staffing. In order to supply the temporary personnel assistance needed to help Weber relocate the Business and the Included Assets, AI shall "lease" certain of AI's employees (the "Temporary Personnel") to Weber during the Transition Period. Before the Closing, Weber shall give Selling Parties notice of each offer of temporary employment made to AI's employees and the terms thereof, whether accepted or not. AI shall be deemed to be the employer of record for the Temporary Personnel for all purposes. Weber shall, however, be entitled to identify the tasks to be performed by the Temporary Personnel, subject to the supervision of appropriate AI and Weber personnel. The Temporary Personnel shall include AI personnel required to relocate the Business and the Included Assets to Weber's facility and to operate and maintain the Poway Facility and the telephone and computer systems located therein during the Transition Period. Selling Parties are not obligated to provide these employees to Weber if Weber is unable to induce them to continue working after the Closing. Weber shall reimburse AI for the actual amount of the Temporary Personnel's wages, FICA and other payroll taxes, benefits and a reasonable amount to compensate AI for the cost of health and worker's compensation insurance premiums during the Transition Period (collectively, the "Temporary Personnel Costs"). The cost of such insurance is listed on the Schedule of Insurance Costs for Temporary Personnel attached hereto as Exhibit "B." Weber shall be entitled to pay - through AI's auspices - a "stay-bonus" to the Temporary Personnel. The amount of the stay-bonus shall be determined by Weber. The stay-bonus shall not be used to offset or reduce any payments due the Temporary Personnel under the WARN Act. Hereafter, Weber's Permanent Hires and the Temporary Personnel may sometimes be collectively referred to as "Weber's Transition Team." 5 126 ARTICLE 3 OPERATION OF BUSINESS DURING TRANSITION PERIOD 3.1 Relationship of Parties - No Agency. During the Transition Period, neither party shall be agents of the other. Neither party shall have authority to bind, obligate or commit the other in any capacity or to execute contracts on behalf of the other. Neither AI nor Weber shall be deemed to be a partner, joint venturer, alter ego, manager, controlling person, or other business associate or participant of any kind of the other in connection with the Business or the Poway Facility. 3.2 Poway Lease. During the Transition Period, AI shall, for all purposes, remain and be deemed to be the tenant under that certain Standard Industrial/Commercial Multi-Tenant Lease-Modified Net dated September 15, 1997 (the "Poway Lease") between AI, as tenant, and W. H. Pomerado, LLC, as landlord. Weber shall not be deemed to have either assumed the Poway Lease, or subleased the Poway Facility (in whole or in part). AI hereby grants Weber an irrevocable license to use the Poway Facility during the Transition Period, subject to this Agreement and the Poway Lease. Because of Weber's limited rights as a licensee, Weber shall not be deemed in control of the Poway Facility. In exercising its rights under such license, Weber shall at all times comply with the Poway Lease and shall pay - without mark-up or increase - the Rent payable by AI under the Poway Lease as specified in Section 4.1(a) below; provided, however, that in no event shall Weber be obligated to pay for any repairs or maintenance of the Poway Facility or for any other expense which is capital in nature, unless such repairs or maintenance work is caused by the negligence or willful misconduct of Weber, its employees, or member of Weber's Transition Team. It is understood and agreed that Selling Parties shall have the right to show the Poway Facility to potential tenants /subtenants during the Transition Period, but the Poway Lease shall not be terminated or assigned (which shall be deemed to include any subleasing of the Poway Facility) in a manner which would interfere with Weber's rights under this Agreement until the end of the Transition Period. Weber shall not be responsible for surrendering the Poway Facility to the landlord or delivering same to successor tenants or subtenants or for returning any leased equipment to the lessors thereof. The Rent, premiums for insurance coverages required under the Poway Lease, and property taxes for the Poway Facility shall not be deemed to be part of AI's trade accounts payable to be assumed by Weber under the Asset Purchase Agreement. AI shall be solely responsible for paying for such items out of its own funds, except as provided in this Agreement during the Transition Period. 3.3 Operation of Business. Unless otherwise instructed by Weber in writing, during the Transition Period AI shall: (a) Cease operating the Business during the Transition Period except as necessary to provide the Services; (b) Cease all manufacturing operations in the Poway Facility effective as of the close of business on the Closing Date; 6 127 (c) Assist Weber in assuming control over the Business and in transferring title to and possession of the Included Assets to Weber; (d) Continue to operate and maintain the Poway Facility in accordance with the Poway Lease; and (e) Provide the Services to Weber, as provided elsewhere in this Agreement. 3.4 Prohibited Transactions. During the Transition Period, AI shall not do, or agree to do, any of the following acts ("Prohibited Transactions") in connection with or relating to the operation of the Business and the transfer of the Business to Weber's Facility without the prior written approval of Weber: (a) Issue or approve any purchase orders; (b) Enter into any contract, commitment, or transaction on behalf of Weber, in any amount or for any purpose; (c) Write checks drawn on accounts owned by Weber; (d) Agree to any payment arrangements (for extending credit or deferring payment) with suppliers or vendors which are not approved in advance by Weber; (e) Accept from vendors any non-conforming goods or merchandise, i.e., raw materials, supplies, or other items for which reimbursement will be sought from Weber which (1) do not comply with the standard descriptions for the Products or such other items, or (2) do not comply with orders placed with the vendors by AI at the direction of Weber; (f) Ship any Products; (g) Respond to or otherwise handle any product liability claims for any Product; (h) Sell any Products of any kind or in any quantity; (i) Open any new customer accounts; (j) Resolve or compromise any customer warranty disputes or any items listed in service bulletins; or (k) Terminate or modify the Poway Lease, or do anything that would prevent Weber from operating in the Poway Facility during the Transition Period. 7 128 3.5 Collection of Monies. Except as may be expressly provided otherwise in the Asset Purchase Agreement, all monies collected by any Selling Party in connection with or relating to the sale of the Products and/or the operation of the Business during the Transition Period shall be deemed to be collected by any Selling Party for the account of and benefit of Weber, it being understood that Weber has purchased all of AI's accounts receivables pursuant to the Asset Purchase Agreement . Any monies that may be collected or received by AI after the Closing in connection with or relating to the sale of Products and/or Business shall belong to Weber and such funds shall not be commingled with funds of Selling Parties and shall be deposited without delay into bank accounts owned by Weber. 3.6 No Conflicting Duties. During the Transition Period, AI and its directors and officers shall not serve as officers, directors, employees, consultants or advisors to any business which competes, directly or indirectly, with the Business, without the prior written consent of Weber. AI confirms that it is under no contractual commitments inconsistent with its obligations set forth in this Agreement, and that during the Transition Period, it will not render or perform services, or enter into any contract to do so, for any other corporation, firm, entity or person, including Simula and Simtec, which are inconsistent with the provisions of this Agreement. 3.7 Regulatory Compliance. During the Transition Period, AI shall comply with the internal risk management procedures and controls established by Weber and all federal, state and local licensing, certification, permit, and approval requirements applicable to the Business or the Poway Facility. 3.8 Assistance From Selling Parties. Subject to Weber's payment of the amounts specified in Article 4 below, Selling Parties hereby agree to use their best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably required by Weber to consummate the relocation of the Business to Weber's Facility and to implement the transactions contemplated by this Agreement, including without limitation to provide adequate administrative and computer support and to make available to Weber immediately upon Weber's request all test records, technical data, numerical dynamic models and the like in connection with or relating to the Products, to the extent same are part of the Included Assets. ARTICLE 4 FINANCIAL MATTERS 4.1 Payments to AI. As compensation for the Services, Weber shall pay AI the following amounts: (a) Rent. Weber shall pay the Base Rent and the Common Area Operating Expenses (collectively "Rent") payable by AI under the Poway Lease for the six (6) month period beginning on the Closing and ending July 31, 2000; provided, however, that any rental payments received by AI from Aerospace Technologies in connection with or relating to the sublease (the "AT Sublease") of a portion of the Poway Facility by Aerospace Technologies during said six-month 8 129 period shall be credited to reduce the amount so payable by Weber for the Rent. The Rent shall be paid as provided in Section 4.2 below. The amount of the Rent is specified on the Invoice dated January 6, 2000 attached hereto as Exhibit "C." Weber's obligation to pay the Rent for the above referenced six-month period will continue beyond the end of the Transition Period. Termination of the Transition Period shall not reduce or end Weber's obligation to pay the Rent. If AI should become excused from paying the rent due under the Poway Lease (due to damage or destruction of the Poway Facility or otherwise but not for subletting or assigning), Weber's obligation to pay the Rent shall be reduced to the same extent. (b) Approved Cost Items. Weber shall reimburse AI for the actual amount of the following direct, out-of-pocket costs and expenses ("Approved Cost Items") reasonably incurred by AI in connection with or relating to the operation of the Business during the Transition Period and the transfer of the Business to Weber's Facility: (1) The cost of electrical, gas, water and telephone service to the Poway Facility during the Transition Period; provided, however, that the cost of long distance telephone calls shall be subject to audit and review by Weber in order to verify that such calls were made in furtherance of the Business and/or its relocation; (2) Rent for any equipment leased by AI (to the extent not part of the Included Assets) which is used by Weber in furtherance of the Business and/or its relocation; (3) Property and general liability insurance premiums payable with respect to the Poway Facility during the Transition Period; (4) Real property taxes for the Poway Facility during the Transition Period; and (5) Such other out-of-pocket expenses as may be reasonably incurred by AI in providing the Services; provided, however, that without Weber's prior written approval, Weber shall not be obligated to reimburse AI for any type or category of cost which is not expressly listed in this Section 4.1 or on Exhibit "A." (c) Temporary Personnel Costs. In addition to the other items listed in this Section 4.1, Weber shall reimburse AI for the Temporary Personnel Costs. Weber and AI shall agree on a mutually satisfactory mechanism for payment of the Temporary Personnel Costs before the Closing. (d) Corporate Support Costs. Weber shall not be required to pay Selling Parties any additional amount for any corporate support services provided as part of the Services by any Selling Party during the Transition Period, except as provided in this Section 4.1(d). Terri Harden and Bob Wolski will be on-site at Poway regularly during the Transition Period and shall fully cooperate and provide the Services without cost to Weber. Notwithstanding anything to the contrary, if Weber requests that either Terri Harden or Bob Wolski travel to San Diego, California to work 9 130 exclusively for the benefit of Weber, Weber shall (1) pay Simula $1,250 per day (prorated for partial days) for each day that such individuals work in San Diego and (2) reimburse Simula for the reasonable out-of-pocket travel costs for airline fares, car rentals, and hotel rooms incurred by such individuals. 4.2 Time of Payment. . Weber shall pay the Rent in installments on the first day of each calendar month for which Weber is obligated to pay the Rent, beginning on February 2, 2000. The installment due on February 2, 2000 shall cover the period beginning at midnight on the Closing Date and ending on February 28, 2000. Unless otherwise agreed in writing, Weber shall pay the other amounts payable by it under Section 4.1 above twice monthly. In order to be reimbursed by the fifteenth (15th) day of a calendar month, AI shall submit to Weber - not later than the fifth (5th) day of such month - invoices stating in reasonable detail the amount of and the reason for each item for which payment is being sought and the justification/explanation for Weber's obligation to pay same; provided, however, that AI's failure to submit such invoices in a timely manner shall not release Weber from its obligations to make the payments provided for in this Article 4. ARTICLE 5 TERM AND TERMINATION 5.1 Term. This Agreement shall become effective at the Closing. The term of this Agreement shall commence on the Closing and shall continue until the end of the Transition Period. 5.2 Termination for Cause. Either party may terminate this Agreement for cause with immediate effect at any time by giving written notice of the termination to the other party. "Cause" shall include, without limitation, the following: (a) Appointment of a receiver or trustee to manage the assets of AI; (b) Assignment for the benefit of creditors of the assets of AI; (c) AI's filing for bankruptcy protection; or (d) Any material breach of this Agreement by either party, which is not cured to the reasonable satisfaction of the non-breaching party within five (5) business days after the breaching party's receipt of notice of default from the non-breaching party. Weber shall be in material breach of this Agreement if it fails to pay amounts due to AI within fifteen (15) days of notice of non-payment from AI. 10 131 ARTICLE 6 INDEMNIFICATION 6.1 Indemnification by AI. In addition to any and all duties of AI set forth in the Asset Purchase Agreement and this Agreement, AI shall defend, indemnify, and hold Weber harmless from any costs, damages, liabilities, losses, lawsuits, and expenses (including without limitation interest, penalties and reasonable attorneys' fees) arising out of or relating to the Covered Claims. 6.2 Indemnification by Weber. In addition to any and all duties of Weber set forth in the Asset Purchase Agreement and this Agreement, Weber shall defend, indemnify, and hold AI harmless from any costs, damages, liabilities, losses, lawsuits, and expenses (including, without limitation interest, penalties and reasonable attorneys' fees) arising out of or relating to the Excluded Claims. 6.3 Dispute Resolution. If the parties dispute their liability with respect to any Covered Claim or Excluded Claim, such dispute, or any other dispute arising out of this Agreement, shall be resolved by arbitration pursuant to Section 7.11 below. ARTICLE 7 MISCELLANEOUS PROVISIONS 7.1 Costs and Expenses. Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement. Each party shall be solely responsible for its respective legal, accounting, and other out-of-pocket expenses. 7.2 Governing Law and Venue. This Agreement and any interpretation hereof and the resolution of any dispute hereunder shall be governed by the laws of the State of California, and subject to the parties' obligation to arbitrate and dispute any action to enforce any provision of this Agreement or to obtain any remedy with respect hereto may be brought in the appropriate state or federal court in San Diego County, California. For this purpose each party hereto hereby expressly and irrevocably consents to the jurisdiction of said court, it being understood and agreed that the parties are obligated to arbitrate disputes between them pursuant to Section 7.11 below. 7.3 Interpretation. This Agreement shall not be interpreted against a party by virtue of such party's participation in the drafting of the Agreement or any provisions herein. 7.4 Amendment. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by all parties to this Agreement whose rights or obligations are affected by such amendment, modification or supplement. 11 132 7.5 Inurement. This Agreement shall be binding upon and inure to the benefit to the successors and/or assigns of the parties to this Agreement. 7.6 Notices. (a) Method of Delivery. Any notice, request, demand, consent, approval or other communication (hereafter "notice") required or permitted under this Agreement or by law shall be in writing and delivered by any of the following means: (1) personally delivering the notice to a senior officer or duly authorized representative of the other party, (2) depositing the notice in the United States mail, postage prepaid, duly certified (return-receipt requested), (3) sending the notice by a commercial overnight delivery service (such as FedEx) which maintains delivery records, or (4) sending the notice by electronic facsimile or telecopier ("fax") (with the sending party retaining evidence of the time and date of transmission). Confirmations of any notices sent by fax shall be sent by mail as provided above. (b) Addresses. Notices shall be addressed as follows: If to AI: Airline Interiors, Inc. 12325 Kerran Street Poway, CA 92064 Attn: Donald Rutter Fax No.: (858) 748-0590 With a copy to: Simula, Inc. 2700 North Central Avenue Suite 1100 Phoenix, AZ 85004 Attn: Bradley P. Forst, Esq. Fax No.: (602) 631-9005 If to Purchaser: Weber Aircraft, Inc. 2000 Weber Drive Gainesville, Texas 76240 Attn: Michel Labarre Fax: (940) 668-4853 With copies to: Zodiac, S.A. 2, rue Maurice Mallet 92137, Issy-les-Moulineaux Cedex France Attn: Jean-Jacques Jegou Fax No: (011-331) 41 23 23 62 12 133 Hillyer & Irwin 550 West C Street, 16th Floor San Diego, CA 92101 Attn: William A. Reavey, Esq. Fax No.: (619) 595-1313 Any party may, from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. It is agreed that separate notices need not be sent to Simtec. Notices sent to Simula shall be deemed to have been sent to Simtec. (c) Effectiveness. All notices shall be deemed effective upon receipt. If personally delivered, notices shall be deemed received at the time of delivery. If sent by mail, notices shall be deemed fully delivered and received three (3) business days after the date of the postmark on the certified mail receipt. If sent by commercial overnight delivery service, notices shall be deemed fully delivered and received one (1) business day after the date of deposit with such commercial overnight delivery service. If sent by fax, notices shall be deemed received twenty-four (24) hours after transmission. Notices may not be sent by e-mail. Rejection or other refusal to accept a notice or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice sent. In the event of a postal strike, all notices shall be personally delivered, sent by commercial overnight delivery service, or sent by fax. 7.7 Headings. The headings of the sections of this Agreement are for the convenience of reference only, and do not form a part hereof, and in no way modify, interpret or construe the meanings of the parties. 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one Agreement. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate original counterparts. 7.9 Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. 7.10 Severability. In case any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein. In the event of any inaccuracy or breach of any representation, warranty, covenant or agreement contained in this Agreement, the rights and remedies of the aggrieved party 13 134 shall not be impaired or limited by reason of the fact that the act, omission, occurrence, or other statement of facts giving rise to such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or any other agreement between the parties) as to which there is no inaccuracy or breach. 7.11 Arbitration. (a) General. Any controversy, claim, or dispute among the parties hereto arising out of or related to this Agreement or the breach thereto, which cannot be settled amicably by the parties, shall be submitted for binding arbitration in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("Rules"); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions and obtain discovery regarding the subject matter of the arbitration, as provided in Title III of Part 4 (commencing with Section 1985) of the California Code of Civil Procedure. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall determine all questions of fact and law relating to any controversy, claim, or dispute hereunder, including but not limited to whether or not any such controversy, claim, or dispute is subject to the arbitration provisions contained herein. (b) Third-Party Controversy. If a controversy, claim, or dispute arises among the parties hereto which is subject to the arbitration provisions hereunder, and there exists or later arises a controversy, claim, or dispute between the parties hereto and any third party, which controversy, claim, or dispute arises out of or relates to the same transaction or series of transactions, said third party controversy, claim, or dispute shall be consolidated with the arbitration proceedings hereunder; provided, however, that any such third party must be a party to an agreement with a party hereto which provides for arbitration of disputes thereunder in accordance with rules and procedures substantially the same in all material respects as provided for herein or, if not, must consent to arbitration as provided for hereunder. (c) Venue. All arbitration proceedings shall be held in San Diego, California. (d) Notices. Notice of the demand for arbitration shall be filed in writing with the other parties to this Agreement and with the American Arbitration Association, it being understood, however, that notices intended for the Selling Parties need only be given to Simula and that separate notices need not be given to AI or Simula. 7.12 Attorneys' Fees. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all attorneys' fees and all costs, including but not limited to service of process costs, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not. Any such reimbursement shall be included in any judgment or final order or award issued in that proceeding. "Prevailing Party" means the party determined to 14 135 most nearly prevail and not necessarily the one in whose favor a judgment or award is rendered. Attorneys' fees incurred in enforcing any judgment or award are recoverable as a separate item, and this provision for post-judgment or post-award attorneys' fees shall survive any judgment or award and shall not be deemed merged into any judgment or award. 7.13 Construction. Whenever the context so requires in this Agreement, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word "person" shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate, or any other entity. 7.14 Authority of Signatories. Each individual signing this Agreement on behalf of a corporation warrants that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, in accordance with a duly adopted resolution of the board of directors of the corporation or in accordance with the bylaws of the corporation, and that this Agreement is binding on the corporation in accordance with its terms. 7.15 Entire Agreement. This Agreement is one of a series of agreements executed as part of an integrated transaction described in the Asset Purchase Agreement. This Agreement, together with the Asset Purchase Agreement and with all other agreements, assignments and exhibits expressly referred to therein or herein, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Agreement. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. To the maximum extent permitted by law, each party expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained or referenced to in this Agreement. 7.16 Calculation of Business Days. For purposes of this Agreement, the term "business days" shall mean days of the week other than Saturdays, Sundays and legal holidays in the United States. 7.17 Approvals by Weber. The only persons authorized to grant any approval or consent required of Weber under this Agreement shall be Michel Labarre or such other person(s) to whom he may delegate this responsibility. [SIGNATURES APPEAR ON FOLLOWING PAGE] 15 136 IN WITNESS WHEREOF, the parties hereto have caused this Transition Support Agreement to be executed effective as of the date set forth above. "AI:" AIRLINE INTERIORS, INC., an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "WEBER:" WEBER AIRCRAFT, INC., a Delaware corporation By: /s/ Michael LaBarre Printed Name: Michael LaBarre Its: President "SIMTEC:" SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By: /s/ Bradley P. Forst Printed Name: Bradley P. Forst Its: Secretary "SIMULA:" SIMULA, INC., an Arizona corporation By:/s/ James C. Dodd Printed Name: James C. Dodd Its: CFO 16 137 EXHIBIT "A" (TO TRANSITION SUPPORT AGREEMENT) SCHEDULE OF SERVICES Subject to Weber's financial obligations under Article 4, in addition to any Services listed elsewhere in the Agreement, Selling Parties shall provide the following Services during the Transition Period: 1. Providing the Temporary Personnel who receive and accept offers of employment from Weber and services reasonably required to operate and maintain the building systems in the Poway Facility, including without limitation telephone and computer systems, facilities management, facilities security, trash removal and other similar services; 2. During the Transition Period, Selling Parties shall also provide - at no cost or expense to Weber - necessary corporate support for all computer systems used in the Business, including by way of illustration but not limitation: the Man-Fact software program, the Solid Works and 3. Autocad software programs, subject, however, to Section 4.1(d) above. Such services shall exclude data conversion to Weber's systems, but Simula shall provide reasonable support and advice to Weber's personnel for such process; 4. Providing such administrative services deemed necessary by Weber to operate the Business and to transfer the Business and the Included Assets to Weber's Facility; 5. Maintaining customer service support functions as deemed necessary by Weber for customers of the Business; 6. Providing after sale services to customers of the Business and end users of the Products; 7. Providing support as reasonably required by Weber to ship the Included Assets to Weber's Facility; 8. Managing the warehouse where the Included Inventory is stored; 9. Collecting the accounts receivables included in the Included Assets as directed by Weber; 10. Providing MIS support services to computer systems in the Poway Facility from Simula's headquarters in Phoenix, AZ, subject to Section 4.1 (d) above; and 17 138 11. Providing accounting support by Terri Harden of Simula in Phoenix, AZ, subject to Section 4.1 (d) above. 18 139 EXHIBIT "B" (TO TRANSITION SUPPORT AGREEMENT) SCHEDULE OF INSURANCE COSTS FOR TEMPORARY PERSONNEL AIRLINES INTERIORS, INC. COBRA MONTHLY INSURANCE RATES
Employee Only Employee and Family 1. Health, Life & Ancillary $ 232.73 $651.82 2. Vision $ 8.09 $ 18.03 3. Worker's Compensation $ 94.23 NA
19 140 EXHIBIT "C" (To Transition Support Agreement) INVOICE - ------------------------ |POMERADO LEASING NO. 1| |P.O. BOX 12440 | |SAN DIEGO, CA 92112 | - ------------------------ - ------------------------ ---------------------------- |AIRLINE INTERIORS | |INVOICE DATE: JAN 06, 2000| |ATTN: ACCOUNTS PAYABLE| | | |12325 KERRAN ST | |REFERENCE: DECREASE IN CAM| |POWAY, CA 92064 | | CHARGE | - ------------------------ ---------------------------- - ------------------------------------------------------- |THE FOLLOWING REPRESENTS RENT DUE EFFECTIVE 01/01/00:| | | |CURRENT MONTHLY RENT: $55,342.| |MONTHLY OPERATING EXPENSES: $15,120.| |MONTHLY TENANT IMPROVEMENT CHARGE: $ 8,954.| |MONTHLY AMOUNT DUE EFFECTIVE 01/01/00: $79,416.| - ------------------------------------------------------- - ------------------------------------------------------- |REMITTANCE ADVICE: | |WE DO NOT INVOICE ON A MONTHLY BASIS. | | | |PLEASE MAKE CHECKS PAYABLE TO: | |POMERADO LEASING NO. 1 | | | |TOTAL DUE MONTHLY (EFFECTIVE 01/01/00): $79,416. | - ------------------------------------------------------- EX-10.41 3 EX-10.41 1 Exhibit 10.41a FINANCING AGREEMENT THE CIT GROUP/BUSINESS CREDIT, INC. (AS LENDER) AND SIMULA, INC. AND ITS SUBSIDIARIES (AS BORROWERS) DATED: DECEMBER 30, 1999 2
TABLE OF CONTENTS SECTION 1. Definitions .................................................. 1 SECTION 2. Conditions Precedent ......................................... 13 SECTION 3. Revolving Loans .............................................. 18 SECTION 4. Term Loan .................................................... 23 SECTION 5. Letters of Credit ............................................ 24 SECTION 6. Collateral ................................................... 26 SECTION 7. Representations, Warranties and Covenants .................... 30 SECTION 8. Interest, Fees and Expenses .................................. 37 SECTION 9. Powers ....................................................... 40 SECTION 10. Events of Default and Remedies ............................... 41 SECTION 11. Termination .................................................. 44 SECTION 12. Miscellaneous ................................................ 45 SIGNATURES ................................................................ 47
EXHIBIT Exhibit A - Form of Term Loan Promissory Note SCHEDULES Schedule 1 - Existing Liens Schedule 2 - Collateral Locations and Chief Executive Office 3 THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter "CITBC") with offices located at 300 South Grand Avenue, 3rd Floor, Los Angeles, California 90071, is pleased to confirm the terms and conditions under which CITBC shall make revolving loans, term loans and other financial accommodations to SIMULA, INC. (herein "Simula"), an Arizona corporation with a principal place of business at 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, and Simula's subsidiaries AIRLINE INTERIORS, INC. (herein "AII"), an Arizona corporation with a principal place of business at 12325 Kerran Street, Poway, California 92064, ARTCRAFT INDUSTRIES CORP. (herein "AIC"), an Arizona corporation with a principal place of business at 4753 Aviation Parkway, Suite F, College Park, Georgia 30349, SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.; herein "STEC"), an Arizona corporation with a principal place of business at 9940 Mesa Rim Road, San Diego, California 92121, INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. (herein "ISFSE"), an Arizona corporation with a principal place of business at 10016 South 51st Street, Phoenix, Arizona 85044, SIMULA AUTOMOTIVE SAFETY DEVICES, INC. (herein "SASD"), an Arizona corporation with a principal place of business at 7360 S. Kyrene Road, Suite 106, Tempe, Arizona 85283, SIMULA COMPOSITES CORPORATION (herein "SCC"), an Arizona corporation with a principal place of business at 2495 South Industrial Park Avenue, Tempe, Arizona 85282, SIMULA POLYMER SYSTEMS, INC. (herein "SPS"), an Arizona corporation with a principal place of business at 10016 South 51st Street, Phoenix, Arizona 85044, SIMULA SAFETY SYSTEMS, INC. (herein "SSS"), an Arizona corporation with a principal place of business at 7414 South Harl Avenue, Tempe, Arizona 85283, SIMULA TECHNOLOGIES, INC. (herein "STI"), an Arizona corporation with a principal place of business at 10016 South 51st Street, Phoenix, Arizona 85044, CCEC CAPITAL CORP., an Arizona corporation with a principal place of business at 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, and SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED (herein "SASD Limited"), a United Kingdom corporation with a principal place of business at Unit 2, Wansbeck Business Park, Rotary Parkway, Ashington, Northumberland NE63 8QZ, United Kingdom (Simula and such subsidiaries may be referred to herein individually as a "Company" and collectively as the "Companies"). SECTION 1. DEFINITIONS ACCOUNTS shall mean all of the Companies' now existing and future: (A) accounts (as defined in the U.C.C.) and any and all other receivables (whether or not specifically listed on schedules furnished to CITBC), including, without limitation, all accounts created by or arising from all of their sales of goods or rendition of services to their customers, and all accounts arising from sales or rendition of services made under any of their trade names or styles, or through any of their divisions; (B) any and all instruments (as defined in the U.C.C.), documents (as defined in the U.C.C.), contract rights (as defined in the U.C.C.) and chattel paper (as defined in the U.C.C.); (C) unpaid seller's rights (including rescission, 1 4 replevin, reclamation and stoppage in transit) relating to the foregoing or arising therefrom; (D) rights to any goods represented by any of the foregoing, including rights to returned or repossessed goods; (E) reserves and credit balances arising hereunder; (F) guarantees or collateral for any of the foregoing; (G) insurance policies or rights relating to any of the foregoing; and (H) cash and non-cash proceeds of any and all the foregoing. ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean eighty-five percent (85%). ADMINISTRATIVE MANAGEMENT FEE shall mean the sum of $35,000 which shall be paid to CITBC in accordance with Section 8, Paragraph 11 hereof to offset the expenses and costs (excluding Out-of-Pocket Expenses) of CITBC in connection with record keeping, periodic examinations, analyzing and evaluating the Collateral. ANNIVERSARY DATE shall mean the date occurring three (3) years from the date hereof and the same date in every year thereafter. AVAILABILITY shall mean, as to any Company, at any time the excess of the sum of a) Eligible Accounts Receivable of such Company multiplied by the Accounts Receivable Advance Percentage, and b) the lesser of (i) Eligible Inventory of such Company multiplied by the Inventory Advance Percentage or (ii) the Inventory Loan Cap, and c) the lesser of (i) Revenue in Excess of Billing of such Company multiplied by the Revenue in Excess of Billing Advance Percentage or (ii) the Revenue in Excess of Billing Loan Cap over the sum of x) the outstanding aggregate amount of all Obligations of such Company, including, without limitation, all Obligations with respect to Revolving Loans and Letters of Credit but excluding the Term Loan and y) the Availability Reserve of such Company. AVAILABILITY RESERVE shall mean, as to any Company, the sum of two (2) months rental payments on all of its leased premises (determined in accordance with Schedule 1 hereto) for which it has not delivered to CITBC a landlord's waiver (in form and substance satisfactory to CITBC in the exercise of its reasonable business judgment), provided that such amount shall be increased to the sum of three (3) months rental payments with respect to all such leased premises as to CITBC has not received a landlord's waiver within 90 days of the Closing Date, as such amounts may be adjusted from time to time hereafter upon (i) delivery to CITBC of any such acceptable waiver, (ii) the opening or closing of a Collateral location and/or (iii) any change in rental payment. BILLINGS shall mean, as to any Company, the amounts billed by such Company under a contract between such Company and a third party, which contract provides for progress billings and payments or otherwise entitles such Company to payment upon such billing. 2 5 BUSINESS DAY shall mean any day that CITBC is open for business in New York, New York, which is not (i) a Saturday, Sunday or legal holiday in the state of New York or (ii) a day on which banking institution chartered by the state of New York or the United States are legally required to close. CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures of the Companies during such period that in conformity with GAAP are required to be included in or reflected by the property, plant or equipment or similar fixed asset account reflected in the balance sheet of the Companies. CAPITAL IMPROVEMENTS shall mean operating Equipment and facilities (other than land) acquired or installed for use in the Companies' business operations. CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed) which, in conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure on the balance sheet of the Companies. CHASE BANK RATE shall mean the rate of interest per annum announced by The Chase Manhattan Bank from time to time as its prime rate in effect at its principal office in the City of New York. (The prime rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers). CLOSING DATE shall mean December 30, 1999. COLLATERAL shall mean all present and future Accounts, Equipment, Inventory, Documents of Title, General Intangibles, Real Estate and Other Collateral of the Companies. CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for Parent, the Companies and the consolidated subsidiaries of each eliminating all inter-company transactions and prepared in accordance with GAAP. CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus individual balance sheets for Parent, the Companies, and the subsidiaries of each showing all elimination of inter-company transactions and prepared in accordance with GAAP and including a balance sheet for each Company exclusively. CUSTOMARILY PERMITTED LIENS shall mean (a) liens of local or state authorities for franchise or other like taxes provided the aggregate amounts of such liens shall not exceed $100,000.00 in the aggregate for the Companies at any one time; 3 6 (b) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other like liens imposed by law, created in the ordinary course of business and for amounts not yet due (or which are being contested in good faith by appropriate proceedings or other appropriate actions which are sufficient to prevent imminent foreclosure of such liens) and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (c) deposits made (and the liens thereon) in the ordinary course of business (including, without limitation, security deposits for leases, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations arising as a result of progress payments under government contracts; and (d) easements (including, without limitation, reciprocal easement agreements and utility agreements), encroachments, minor defects or irregularities in title, variation and other restrictions, charges or encumbrances (whether or not recorded) affecting the Real Estate and which (i) are listed in Schedule B of the title insurance policy delivered to CITBC herewith or (ii) in the aggregate (x) do no materially interfere with the occupation, use or enjoyment by the Companies in their business of the property so encumbered and (y) in the reasonable business judgment of CITBC does not materially and adversely affect the value of such Real Estate. DEFAULT shall mean any event specified in Section 10 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the sum of: a) two percent (2%) plus b) the applicable contract rate of interest based upon the applicable increment over the Chase Bank Rate as determined under Section 8 hereof, which CITBC shall be entitled to charge the Companies on all Obligations due CITBC by the Companies to the extent provided in Section 10, Paragraph 2 of this Financing Agreement. DEPOSITORY ACCOUNTS shall have the meaning specified in Section 3, Paragraph 4 hereof. DIVESTITURE shall mean the consummation of the sale by Simula of the capital stock or substantially all of the assets of AII. 4 7 DOCUMENTATION FEE shall mean CITBC's standard fees relating to any and all modifications, waivers, releases, amendments or additional collateral with respect to this Financing Agreement, the Collateral and/or the Obligations. DOCUMENTS OF TITLE shall mean all present and future documents (as defined in the U.C.C.) including, without limitation all warehouse receipts, bills of lading, shipping documents, chattel paper, instruments and similar documents, all whether negotiable or not and all goods and Inventory relating thereto and all cash and non-cash proceeds of the foregoing. EARLY TERMINATION DATE shall mean the date on which the Companies terminate this Financing Agreement or the Line of Credit which date is prior to an Anniversary Date. EARLY TERMINATION FEE shall: I) mean the fee CITBC is entitled to charge the Companies in the event they terminate the Line of Credit or this Financing Agreement on a date prior to an Anniversary Date; and II) be determined by multiplying the Line of Credit by (x) one and one-half percent (1-1/2%) if the Early Termination Date occurs on or prior to one (1) year after the Closing Date, or (y) three-fourths percent (3/4%) if the Early Termination Date occurs after one (1) year after the Closing Date but prior to two (2) years after the Closing Date. EBITDA shall mean, in any period, all earnings before all (i) interest and tax obligations, (ii) depreciation, and (iii) amortization for said period, all determined in accordance with GAAP on a basis consistent with the latest audited financial statements of the Companies but excluding the effect of extraordinary and/or non-reoccurring gains or losses for such period. ELIGIBLE ACCOUNTS RECEIVABLE shall mean, as to any Company, the gross amount of such Company's Trade Accounts Receivable that are subject to a valid, first priority and fully perfected security interest in favor of CITBC and which conform to the warranties contained herein and at all times continue to be acceptable to CITBC in the exercise of its reasonable business judgment, less, without duplication, the sum of a) any returns, discounts, claims, credits and allowances of any nature (whether issued, owing, granted or outstanding) and b) reserves for: i) sales to the United States of America or to any agency, department or division thereof (other than Trade Accounts Receivable as to which such Company has complied with the federal Assignment of Claims Act for the benefit of CITBC); ii) foreign sales other than sales x) secured by stand-by letters of credit (in form and substance satisfactory to CITBC) issued or confirmed by, and payable at, banks having a place of business in the United States of America and payable in United States currency, or y) covered by credit insurance in form and substance satisfactory to CITBC, or z) otherwise deemed creditworthy and acceptable by CITBC; iii) Accounts that remain unpaid more than ninety (90) days from invoice date (but with respect to Accounts as to which the 5 8 payment terms are up to ninety (90) days from invoice date, Accounts that remain unpaid for 30 days past due date but in no event unpaid one hundred twenty (120) days or more past invoice date); iv) contras; v) sales to Parent, any subsidiary, or to any company affiliated with the Companies or Parent in any way; vi) bill and hold (deferred shipment) or consignment sales; vii) sales to any customer which is a) insolvent, b) the debtor in any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law, c) negotiating, or has called a meeting of its creditors for purposes of negotiating, a compromise of its debts or d) financially unacceptable to CITBC or has a credit rating unacceptable to CITBC; viii) all sales to any customer if fifty percent (50%) or more of either x) all outstanding invoices or y) the aggregate dollar amount of all outstanding invoices, are unpaid more than ninety (90) days from invoice date; ix) a concentration reserve, at CITBC's discretion, against sales to any customer (other than AutoLiv and its affiliates as to which the concentration reserve shall be up to 35% (and up to 45% after consummation of the Divestiture), as determined in CITBC's discretion as against the aggregate of all Eligible Accounts Receivable of the Companies) which are in excess of an amount up to twenty percent (20%) (as determined in CITBC's discretion) of all Eligible Accounts Receivable; x) any other reasons deemed necessary by CITBC in its reasonable business judgment and which are customary either in the commercial finance industry or in the lending practices of CITBC; xi) an amount representing, historically, returns, discounts, claims, credits and allowances; and xii) such other reserves as CITBC deems necessary in its commercially reasonable judgment as a result of a) negative forecasts and/or trends in such Company's business, industry, prospects, profits, operations or financial condition, or b) other issues, circumstances or facts that could otherwise negatively affect such Company, its business, prospects, profits, operations, industry, financial condition or assets. ELIGIBLE INVENTORY shall mean, as to any Company, the gross amount of such Company's Inventory that is subject to a valid, first priority and fully perfected security interest in favor of CITBC and which conform to the warranties contained herein and which at all times continue to be acceptable to CITBC in the exercise of its reasonable business judgment less any work-in-process, supplies (other than raw material), goods not present in the United States of America, goods returned or rejected by its customers other than goods that are undamaged and resaleable in the normal course of business, goods to be returned to its suppliers, goods in transit to third parties (other than its agents or warehouses), Inventory in possession of a warehouseman, bailee or other third party unless such warehouseman, bailee or third party has executed a notice of security interest agreement (in form and substance satisfactory to CITBC) and CITBC has taken all other action required to perfect its security interest in such Inventory, and less any reserves required by CITBC in its reasonable discretion for special order goods, market value declines and bill and hold (deferred shipment) or consignment sales. 6 9 EQUIPMENT shall mean all present and hereafter acquired equipment (as defined in the U.C.C.) including, without limitation, all machinery, equipment, furnishings and fixtures, and all additions, substitutions and replacements thereof, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto and all proceeds of whatever sort. ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended from time to time and the rules and regulations promulgated thereunder from time to time. EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this Financing Agreement. EXECUTIVE OFFICERS shall mean the Chairman, President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Executive Vice President(s), Senior Vice President(s), Treasurer, Controller and Secretary of the Companies. FISCAL QUARTER shall mean each three (3) month period ending on March 31, June 30, September 30 and December 31 of each year. FISCAL YEAR shall mean each twelve (12) month period commencing on January 1 each year and ending on the following December 31. FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio determined by dividing EBITDA by the sum of (i) all interest obligations paid in cash, (ii) the amount of principal repaid or scheduled to be repaid on Indebtedness, but excluding the Term Loan or the LLCP Term Loan A Debt repaid due to the consummation of the Divestiture or the sale of the stock or assets of a Company, (iii) Capital Expenditures and (iv) all federal, state and local income tax expenses paid in cash. GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time and for the period as to which such accounting principles are to apply. GENERAL INTANGIBLES shall have the meaning set forth in the U.C.C. and shall include, without limitation, all present and future right, title and interest in and to all tradenames, Trademarks (together with the goodwill associated therewith), Patents, licenses, customer lists, distribution agreements, supply agreements and tax refunds, together with all monies and claims for monies now or hereafter due and payable in connection with any of the foregoing or otherwise, and all cash and non-cash proceeds thereof. GUARANTORS shall mean i) Parent, and ii) the Companies. 7 10 INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or otherwise, which are any of the following: (a) obligations in respect of money (borrowed or otherwise) or for the deferred purchase price of property, services or assets, other than Inventory, or (b) lease obligations which, in accordance with GAAP, have been, or which should be capitalized. INTERCREDITOR AGREEMENT shall mean that certain Intercreditor Agreement, dated on or about the date hereof, between CITBC and LLCP. INVENTORY shall mean all of the Companies' present and hereafter acquired inventory (as defined in the U.C.C. including, without limitation all merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping same; in all stages of production- from raw materials through work-in-process to finished goods - and all proceeds thereof of whatever sort. INVENTORY ADVANCE PERCENTAGE shall mean fifty percent (50%). INVENTORY LOAN CAP shall mean $7,000,000; provided that upon the earlier of the consummation of the Divestiture or the first anniversary of the Closing Date, such amount shall be reduced to $5,000,000. ISSUING BANK shall mean the bank issuing Letters of Credit for the Companies. LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of CITBC by the Issuing Bank for or on behalf of the Companies. LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the Issuing Bank of the Companies' reimbursement obligation under the Issuing Bank's reimbursement agreement, application for letter of credit or other like document. LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Companies under Section 8, Paragraph 6 of this Financing Agreement for: i) issuing the Letter of Credit Guaranty or ii) otherwise aiding the Companies in obtaining Letters of Credit. LETTER OF CREDIT SUB-LINE shall mean $3,000,000 in the aggregate for the Companies. LIBOR shall mean at any time of determination, and subject to availability, for each interest period the higher of the applicable London Interbank Offered rate paid in London on dollar deposits from other banks as (x) quoted by The Chase Manhattan Bank, (y) published under "Money Rates" in the new York City edition of the Wall Street Journal or if there is no such publication or statement therein as to Libor then in any publication used in the 8 11 New York City financial community or (z) determined by CITBC based upon information presented on Telerate Systems at Page 3750 as of 11:00 a.m. (London Time). LIBOR LOAN shall mean those Revolving Loans for which the Companies have elected to use Libor for interest rate computations. LIBOR PERIOD shall mean the Libor for one month, two month, three month or six month U.S. dollar deposits, as selected by the Companies. LINE OF CREDIT shall mean the commitment of CITBC to make Revolving Loans pursuant to Section 3 of this Financing Agreement and to assist the Companies in opening Letters of Credit pursuant to Section 5 of this Financing Agreement, in the aggregate amount equal to $17,000,000 for the Companies. LLCP shall mean Levine Leichtman Capital Partners II, L.P. LLCP DEBT shall mean the LLCP Term Loan A Debt and the LLCP Term Loan B Debt, or such portion thereof as may be outstanding from time to time. LLCP TERM LOAN A DEBT shall mean indebtedness in the original principal amount of $5,000,000 advanced to the Companies by LLCP on or about the date hereof with a stated maturity of September 30, 1999. LLCP TERM LOAN B DEBT shall mean indebtedness in the original principal amount of $15,000,000 advanced to the Companies by LLCP on or about the date hereof with a stated maturity of June 30, 2003. LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and pursuant to, the provisions of Section 8, Paragraph 10 of this Financing Agreement. OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to the Companies or to others for the Companies' account (including, without limitation, all Revolving Loans, Letters of Credit, and the Term Loan); any and all indebtedness and obligations which may at any time be owing by the Companies to CITBC howsoever arising, whether now in existence or incurred by the Companies from time to time hereafter; whether secured by pledge, lien upon or security interest in any of the Companies' assets or property or the assets or property of any other person, firm, entity or corporation; whether such indebtedness is absolute or contingent, joint or several, matured or unmatured, direct or indirect and whether the Companies are liable to CITBC for such indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations shall also include indebtedness owing to CITBC by the Companies under this Financing Agreement or under any other agreement or arrangement now or hereafter entered into between the 9 12 Companies and CITBC; indebtedness or obligations incurred by, or imposed on, CITBC as a result of environmental claims (other than as a result of actions of CITBC) arising out of the Companies' operation, premises or waste disposal practices or sites; the Companies' liability to CITBC as maker or endorser on any promissory note or other instrument for the payment of money; the Companies' liability to CITBC under any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or undertaking which CITBC may make or issue to others for the Companies' account, including any accommodation extended with respect to applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's endorsement of notes or other instruments for the Companies' account and benefit. OPERATING LEASES shall mean all leases of property (whether real, personal or mixed) other than Capital Leases. OTHER COLLATERAL shall mean all now owned and hereafter acquired deposits accounts maintained with any bank or financial institutions; all cash and other monies and property in the possession or control of CITBC; all now owned and after acquired investment property; all books, records, ledger cards, disks and related data processing software at any time evidencing or containing information relating to any of the Collateral described herein or otherwise necessary or helpful in the collection thereof or realization thereon, and all cash and non-cash proceeds of the foregoing. OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future expenses incurred relative to this Financing Agreement, whether incurred heretofore or hereafter, which expenses shall include, without being limited to, the cost of record searches, all costs and expenses incurred by CITBC in opening bank accounts, depositing checks, receiving and transferring funds, and any charges imposed on CITBC due to "insufficient funds" of deposited checks and CITBC's standard fee relating thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the Companies' Reimbursement Agreement, Application for Letter of Credit or other like document which pertain either directly or indirectly to such Letters of Credit, and CITBC's standard fees relating to the Letters of Credit and any drafts thereunder, reasonable travel, lodging and similar expenses of CITBC's personnel in inspecting and monitoring the Collateral from time to time hereunder local counsel fees, title insurance premiums, real estate survey costs, fees and taxes relative to the filing of financing statements, costs of preparing and recording mortgages/deeds of trust against the Real Estate and all expenses, costs and fees set forth in Section 10, Paragraph 3 of this Financing Agreement. OVERADVANCE RATE shall mean a rate equal to one-half of one percent (1/2%) per annum in excess of the applicable contract rate of interest determined in accordance with Section 8, Paragraph 1(a) of this Financing Agreement. 10 13 PARENT shall mean Simula. PATENTS shall mean all present and hereafter acquired patents and/or patent rights of the Companies and all cash and non-cash proceeds thereof. PERMITTED ENCUMBRANCES shall mean: i) liens existing on the date hereof on specific items of Equipment and listed on Schedule 1 hereto and other liens expressly permitted, or consented to, by CITBC (including the liens securing the LLCP Debt as contemplated under the Intercreditor Agreement); ii) Purchase Money Liens; iii) Customarily Permitted Liens; iv) liens granted CITBC by the Companies; v) liens of judgment creditors provided such liens do not exceed, in the aggregate for the Companies, at any time, $50,000.00 (other than liens bonded or insured to the reasonable satisfaction of CITBC); and vi) liens for taxes not yet due and payable or which are being diligently contested in good faith by the Companies by appropriate proceedings and which liens are not x) other than with respect to Real Estate, senior to the liens of CITBC or y) for taxes due the United States of America. PERMITTED INDEBTEDNESS shall mean: i) current indebtedness maturing in less than one year and incurred in the ordinary course of business for raw materials, supplies, equipment, services, taxes or labor; ii) the indebtedness secured by the Purchase Money Liens; iii) Subordinated Debt (or refinancings or renewals thereof if on substantially the same or more favorable terms and structure, including but not limited to the maturity, debt service, interest rates and such other terms as CITBC deems material in its reasonable commercial judgment); iv) indebtedness arising under the Letters of Credit and this Financing Agreement; v) deferred taxes and other expenses incurred in the ordinary course of business; vi) LLCP Debt; and vii) other indebtedness existing on the date of execution of this Financing Agreement and listed in the most recent financial statement delivered to CITBC or otherwise disclosed to CITBC in writing. PROMISSORY NOTE shall mean the note, in the form of Exhibit A attached hereto, delivered by The Companies to CITBC to evidence the Term Loan pursuant to, and repayable in accordance with, the provisions of Section 4 of this Financing Agreement. PURCHASE MONEY LIENS shall mean liens on any item of equipment acquired after the date of this Financing Agreement provided that i) each such lien shall attach only to the property to be acquired, ii) a description of the property so acquired is furnished to CITBC, and iii) the debt incurred in connection with such acquisitions shall not exceed in the aggregate $4,000,000 in any Fiscal Year plus, from and after January 1, 2001, the difference between the amount permitted hereunder during the prior Fiscal Year and the amount actually expended. 11 14 REAL ESTATE shall mean the Companies' fee and/or leasehold interests in real property, which has been, or will be, encumbered, mortgaged, pledged or assigned to CITBC or its designee. REVENUE IN EXCESS OF BILLINGS shall mean, as to any Company, with respect to contracts between such Company and unaffiliated third parties acceptable to CITBC in its discretion, the costs and estimated earnings which such Company certifies to CITBC have been earned and will be payable to such Company upon the billing therefor by such Company under the applicable contract, and which amounts are not subject to any right of offset, deduction, or other claim except as consented to in writing by CITBC. REVENUE IN EXCESS OF BILLING ADVANCE PERCENTAGE shall mean fifteen percent (15%). REVENUE IN EXCESS OF BILLING LOAN CAP shall mean $1,500,000. REVOLVING LOANS shall mean the loans and advances made, from time to time, to or for the account of the Companies by CITBC pursuant to Section 3 of this Financing Agreement. REVOLVING LOAN ACCOUNT(S) shall have the meaning specified in Section 3, Paragraph 6 hereof. SUBORDINATED DEBT shall mean the debt due a Subordinating Creditor (and the note evidencing such) which has been subordinated, by a Subordination Agreement, to the prior payment and satisfaction of the Obligations of the Companies to CITBC (in form and substance satisfactory to CITBC); the debt of approximately $3,238,000 as of the date hereof issued pursuant to that certain Indenture, dated April 1, 1997 among Simula, certain of its subsidiaries and Bank One, Columbus, N.A. as Trustee (the "1997 Indenture"); and the debt of approximately $34,500,000 as of the date hereof issued pursuant to the 1997 Indenture. SUBORDINATING CREDITOR shall mean any party hereafter executing a Subordination Agreement. SUBORDINATION AGREEMENT shall mean an agreement among the Companies, a Subordinating Creditor and CITBC pursuant to which Subordinated Debt is subordinated to the prior payment and satisfaction of the Companies' Obligations to CITBC (in form and substance satisfactory to CITBC). TERM LOAN PROMISSORY NOTE shall mean the promissory note in the form of Exhibit A hereto executed by the Companies to evidence the Term Loan made by CITBC under Section 4 hereof. 12 15 TERM LOAN shall mean the term loan in the principal amount of $5,000,000 made by CITBC pursuant to, and repayable in accordance with, the provisions of Section 4 of this Financing Agreement. TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which arises from the sale of Inventory or the rendition of services in the ordinary course of business. TRADEMARKS shall mean all present and hereafter acquired trademarks and/or trademark rights (together with the goodwill associated therewith) and all cash and non-cash proceeds thereof. U.C.C. shall mean the Uniform Commercial Code as in effect from time to time in the state of California. UNUSED LINE FEE shall: i) mean the fee due CITBC at the end of each month for the Line of Credit, and ii) be determined by multiplying the difference between the Line of Credit, and the sum of (x) the average daily balance of Revolving Loans of the Companies plus (y) the average daily balance of Letters of Credit of the Companies of the Companies for said month by three-eighths of one percent (3/8%) per annum for the number of days in said month. WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities. SECTION 2. CONDITIONS PRECEDENT AND SUBSEQUENT The obligation of CITBC to make loans hereunder is subject to the satisfaction of, or waiver of, immediately prior to or concurrently with, or subsequent to (where indicated), the making of such loans, the following conditions precedent: a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform Commercial Code searches satisfactory to CITBC for all locations presently occupied or used by the Companies. b) CASUALTY INSURANCE - The Companies shall have delivered to CITBC evidence satisfactory to CITBC that casualty insurance policies listing CITBC as loss payee or mortgagee, as the case may be, are in full force and effect, all as set forth in Section 7, Paragraph 5 of this Financing Agreement. c) MORTGAGES/DEEDS OF TRUST - The Companies shall have executed and delivered to either CITBC or an agent of CITBC or of a title insurance Company acceptable to CITBC such mortgages and deeds of trust as CITBC may reasonably require to obtain first liens on the Real Estate; provided that this condition may be satisfied within 30 days following the Closing Date, and any failure to do so will constitute an Event of Default hereunder. 13 16 d) UCC FILINGS - Any documents (including without limitation, financing statements) required to be filed in order to create, in favor of CITBC, a first and (other than Permitted Encumbrances) exclusive perfected security interest in the Collateral with respect to which a security interest may be perfected by a filing under the U.C.C. shall have been properly filed in each office in each jurisdiction required in order to create in favor of CITBC a perfected lien on the Collateral. CITBC shall have received acknowledgement copies of all such filings (or, in lieu thereof, CITBC shall have received other evidence satisfactory to CITBC that all such filings have been made); and CITBC shall have received evidence that all necessary filing fees and all taxes or other expenses related to such filings have been paid in full. e) TITLE INSURANCE POLICIES - Together with the execution and delivery of the deeds of trust and mortgages under c) above, CITBC shall have received, in respect of each mortgage or deed of trust, a mortgagee's title policy or marked-up unconditional binder for such insurance. Each such policy shall (i) be in an amount satisfactory to CITBC; (ii) insure that the mortgage or deed of trust insured thereby creates a valid first lien on the property covered by such mortgage or deed of trust, free and clear of all defects and encumbrances except those acceptable to CITBC; (iii) name CITBC as the insured thereunder; and (iv) contain such endorsements and effective coverage as CITBC may reasonably request, including without limitation the revolving line of credit endorsement. CITBC shall also have received evidence that all premiums in respect of such policies have been paid and that all charges for mortgage recording taxes, if any, shall have been paid. f) SURVEYS - If reasonably required by CITBC, together with the execution and delivery of the deeds of trust and mortgages under c) above, CITBC and the title insurance company issuing each policy referred to in the immediately preceding paragraph (each, a "Title Insurance Company") shall have received maps or plats of a perimeter or boundary of the site of each of the properties covered by the mortgages or deeds of trust, dated a date satisfactory to CITBC and the relevant Title Insurance Company prepared by an independent professional licensed land surveyor satisfactory to CITBC and the relevant Title Insurance Company, which maps or plats and the surveys on which they are based shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping; and, without limiting the generality of the foregoing, there shall be surveyed and shown on the maps or plats or surveys the following: (i) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines insofar as the foregoing affect the perimeter or boundary of such property; (ii) the lines of streets abutting the sites and width thereof; (iii) all access and other easements appurtenant to the sites or necessary or desirable to use the sites; (iv) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the sites, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (v) any encroachments on any adjoining property by the building structures and improvements on the sites; and (vi) if the site is designated as being on a filed map, a 14 17 legend relating the survey to said map. Further, the survey shall x) be certified to CITBC and the Title Insurance Company and y) contain a legend reciting as to whether or not the site is located in a flood zone. g) GUARANTIES - The Guarantors shall have executed and delivered to CITBC guaranties, in form acceptable to CITBC, guaranteeing all present and future obligations of the Companies to CITBC. h) OPINIONS - Counsel for the Companies and the Guarantors shall have delivered to CITBC opinions satisfactory to CITBC opining, inter alia, that, subject to the i) filing, priority and remedies provisions of the Uniform Commercial Code, ii) the provisions of the Bankruptcy Code, insolvency statutes or other like laws, iii) the equity powers of a court of law and iv) such other matters as may be agreed upon with CITBC: (A)(a) this Financing Agreement, (b) the Guaranty of the Guarantors, and (c) all other loan documents of the Companies and the Guarantors are x) valid, binding and enforceable according to their terms, y) are duly authorized and z) do not violate any terms, provisions, representations or covenants in the charter or by-laws of the Companies or the Guarantors or, to the best knowledge of such counsel, of any loan agreement, mortgage, deed of trust, note, security or pledge agreement or indenture to which the Companies or the Guarantors is a signatory or by which the Companies or the Guarantors or their assets are bound; and (B) the provisions of all federal and state securities laws and the Hart-Scott-Rodino Anti-Trust Improvements Act have been fully complied with or that compliance is not legally required and the reasons supporting such non-compliance. i) PLEDGE AGREEMENT - Parent and such Companies as hold stock of other Companies or of other subsidiaries shall a) execute and deliver to CITBC a pledge and security agreement and stock powers pledging to CITBC as additional collateral for the Obligations of the Companies all of the issued and outstanding stock of the Companies and any and all subsidiaries of the Companies and, b) deliver to CITBC the stock certificates evidencing such stock together with duly executed stock powers with respect thereto. j) ADDITIONAL DOCUMENTS - The Companies shall have executed and delivered to CITBC all loan documents necessary to consummate the lending arrangement contemplated between the Companies and CITBC. k) LLCP DEBT AND INTERCREDITOR AGREEMENT - The Companies shall provide CITBC with documentation evidencing the consummation of the transactions relating to the LLCP Debt, upon terms and conditions and otherwise in form and substance satisfactory to CITBC in its discretion (including provisions to the effect that no principal payments shall be due thereon prior to the date three years after the Closing Date other than principal payments with respect to the LLCP Term Loan A Debt due upon the sale of the stock or assets of a subsidiary of Simula after payment of Term Loan and any Revolving Loans advanced in reliance upon any such assets or the assets of any such subsidiary), and resulting in the advance to the Companies of $20,000,000, and LLCP shall have executed and delivered to CITBC the Intercreditor Agreement in form and substance satisfactory to CITBC in its discretion. 15 18 l) DESJARDINS DEBT - The Indebtedness of $1,000,000 owing by Simula to Stanley Desjardins shall be evidenced by instrument providing for payment on terms acceptable to CITBC. m) ENVIRONMENTAL REPORT - CITBC shall have received, environmental audit reports on i) all of the Companies' leasehold and fee interests, and ii) the Companies' waste disposal practices. The reports must x) be satisfactory to CITBC and y) not disclose or indicate any liability (real or potential) stemming from the Companies' premises, operations, waste disposal practices or waste disposal sites used by Companies'. n) BOARD RESOLUTION - CITBC shall have received a copy of the resolutions of the Board of Directors of the Companies and the Guarantors (as the case may be) authorizing the execution, delivery and performance of (i) this Financing Agreement, (ii) the Guaranties and (iii) any related agreements, in each case certified by the Secretary or Assistant Secretary of the Companies and the Guarantors (as the case may be) as of the date hereof, together with a certificate of the Secretary or Assistant Secretary of the Companies and the Guarantors (as the case may be) as to the incumbency and signature of the officers of the Companies and/or the Guarantors executing such agreements and any certificate or other documents to be delivered by them pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary. o) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the Certificate of Incorporation of the Companies and the Guarantors certified by the Secretary of State of its incorporation, and (ii) a copy of the By-Laws (as amended through the date hereof) of the Companies and the Guarantors certified by the Secretary or Assistant Secretary thereof. p) OFFICER'S CERTIFICATE - CITBC shall have received an executed Officer's Certificate of the Companies, satisfactory in form and substance to CITBC, certifying that (i) the representations and warranties contained herein are true and correct in all material respects on and as of the date hereof; (ii) the Companies are in compliance with all of the terms and provisions set forth herein; and (iii) no Default or Event of Default has occurred. q) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse change in the financial condition, business, prospects, profits, operations or assets of the Companies shall have occurred. r) INTENTIONALLY OMITTED. s) DIVESTITURE - In connection with the Divestiture, the Company shall have signed a definitive purchase agreement with Weber Aircraft, Inc. or an affiliate thereof ("Weber") with respect to AII on terms and conditions satisfactory to CITBC, (ii) Weber shall have paid a cash deposit of $2,000,000 with respect to payment of the purchase price thereunder, (iii) Weber shall have made available to AII $1,000,000 of such deposit to fund the working capital needs of AII, as a loan on an unsecured basis, and (iii) Simula shall have provided to CITBC copies of the Simula Hart-Scott-Rodino filing with respect to the Divestiture sufficiently in advance of the Closing Date to allow CITBC to review such filing prior to the Closing Date, which review shall be satisfactory to CITBC in its sole discretion. 16 19 t) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this Financing Agreement, there shall be no x) litigation, investigation or proceeding (judicial or administrative) pending or threatened against the Companies or the Guarantors or their assets, by any agency, division or department of any county, city, state or federal government arising out of the Divestiture or this Financing Agreement, y) injunction, writ or restraining order restraining or prohibiting the Divestiture or the consummation of the financing arrangements contemplated under this Financing Agreement or z) to the best knowledge of the Companies, suit, action, investigation or proceeding (judicial or administrative) pending or threatened against the Companies or the Guarantors or their assets, which, in the opinion of CITBC, if adversely determined could have a material adverse effect on the business, operation, assets, financial condition or Collateral of the Companies and/or the Guarantors u) DISBURSEMENT AUTHORIZATION - The Companies shall have delivered to CITBC all information necessary for CITBC to issue wire transfer instructions on behalf of the Companies for the initial and subsequent loans and/or advances to be made under this Agreement including, but not limited to, disbursement authorizations in form acceptable to CITBC. v) EXAMINATION & VERIFICATION - CITBC shall have completed to the satisfaction of CITBC an examination and verification of the Accounts, Inventory, books and records of the Companies and the Guarantors which examination shall indicate that, after giving effect to all loans, advances and extensions of credit to be made at closing, the Companies shall have an opening additional aggregate Availability of $2,000,000 (not including the $1,000,000 of funding to be made available to AII by Weber) of which no more than $500,000 is attributable to AII. It is understood that such requirement contemplates that all debts, obligations and payables are current in accordance with the Companies usual business practices. w) FINANCIAL PROJECTIONS - CITBC shall have received, reviewed and be satisfied with a two years consolidated and consolidating financial projections, including monthly detail and projected borrowing availability for the first year, together with a balance sheet, profit and loss statement, and statement of cash flows, accompanied by a management discussion and analysis as well as detail of material assumptions, all in form an substance satisfactory to CITBC. x) COLLECTION ACCOUNTS - The Companies shall have established a system of bank accounts with respect to the collection of Accounts and the deposit of proceeds of Inventory as shall be acceptable to CITBC in all respects, which system shall include a concentration account as of the Closing Date and lock-box collection arrangements as soon as practicable thereafter. z) EXISTING REVOLVING CREDIT AGREEMENT - The Companies' existing credit agreement with Bank One and Imperial Bank shall be (x) terminated, (y) all loans and obligations of the Companies and/or the Guarantors thereunder shall be paid or satisfied in full utilizing the proceeds of the initial Revolving Loans and Term Loans to be made under this Financing Agreement and (z) all liens upon or security interest in favor of Bank 17 20 One and Imperial Bank in connection therewith shall be terminated and/or released upon such payment. aa) ASSIGNMENT OF CLAIMS ACT COMPLIANCE - The Companies shall comply with the federal Assignment of Claims Act within 60 days following the Closing Date as to such Accounts due from the U.S. government as CITBC shall have determined appropriate in its discretion. bb) FOREIGN PATENT FILINGS - The Companies shall have provided CITBC within 60 days of the Closing with such patent security interest and lien filings as CITBC may require for recordation in foreign countries with respect to patents registered therein. Upon the execution of this Financing Agreement and the initial disbursement of loans hereunder, all of the above Conditions Precedent shall have been deemed satisfied except as the Company and CITBC shall otherwise agree herein or in a separate writing. SECTION 3. REVOLVING LOANS 1. CITBC agrees, subject to the terms and conditions of this Financing Agreement from time to time, and within x) the Availability and y) the Line of Credit, but subject to CITBC's right to make "overadvances", to make loans and advances to each of the Companies on a revolving basis (i.e. subject to the limitations set forth herein, the Companies may borrow, repay and re-borrow Revolving Loans). Such loans and advances to each Company shall be in amounts up to the sum of: a) outstanding Eligible Accounts Receivable of such Company multiplied by the Accounts Receivable Advance Percentage, plus b) the lesser of (x) the Revenue in Excess of Billing Loan Cap and (y) outstanding Revenue in Excess of Billing of such Company multiplied by the Revenue in Excess of Billing Advance Percentage, plus c) the lesser of (x) the Inventory Loan Cap and (y) the aggregate value of Eligible Inventory of such Company as determined at the lower of cost or market multiplied by the Inventory Advance Percentage. Each request shall constitute, unless otherwise disclosed in writing to CITBC, a representation and warranty by the Companies that (i) after giving effect to the requested advance, no Default or Event of Default has occurred and (ii) such requested Revolving Loan is within the Line of Credit and Availability. All requests for loans and advances must be received by an officer of CITBC no later than 1:00 p.m., New York time, of the day on which such loans and advances are required. Should CITBC for any reason honor requests for advances in excess of the limitations set forth herein, such advances shall be considered "overadvances" and shall be made in CITBC's sole discretion, subject to any additional terms CITBC deems necessary. 2. In furtherance of the continuing assignment and security interest in the Companies' Accounts, the Companies will, upon the creation of Accounts, execute and deliver to CITBC in such form and manner as CITBC may reasonably require, solely for CITBC's convenience in maintaining records of collateral, such confirmatory schedules of 18 21 Accounts as CITBC may reasonably request, and such other appropriate reports designating, identifying and describing the Accounts as CITBC may reasonably require. In addition, upon CITBC's request the Companies shall provide CITBC with copies of agreements with, or purchase orders from, the Companies' customers, and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to said Accounts and other collateral as CITBC may reasonably require. Failure to provide CITBC with any of the foregoing shall in no way affect, diminish, modify or otherwise limit the security interests granted herein. The Companies hereby authorize CITBC to regard the Companies' printed name or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual signature by one of the Companies' authorized officers or agents. 3. Each of the Companies hereby represents and warrants that: each of its Trade Accounts Receivable is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by them in the ordinary course of their business; the goods and Inventory being sold and the Trade Accounts Receivable created are their exclusive property and are not and shall not be subject to any lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever, other than the Permitted Encumbrances; the invoices evidencing such Trade Accounts Receivable are in their name; and their customers have accepted the goods or services, owe and are obligated to pay the full amounts stated in the invoices according to their terms, without dispute, offset, defense, counterclaim or contra, except for disputes and other matters arising in the ordinary course of business with respect to which they have complied with the notification requirements of Paragraph 5 of this Section 3. Each of the Companies confirms to CITBC that any and all taxes or fees relating to its business, its sales, the Accounts or goods relating thereto, are its sole responsibility and that same will be paid by them when due and that none of said taxes or fees represent a lien on or claim against the Accounts. Each of the Companies also warrants and represents that it is a duly and validly existing corporation and is qualified in all states where the failure to so qualify would have a adverse effect on their business or their ability to enforce collection of Accounts due from customers residing in that state. Each of the Companies agrees to maintain such books and records regarding Accounts as CITBC may reasonably require and agrees that such books and records will reflect CITBC's interest in the Accounts. All of the books and records of the Companies will be available to CITBC at normal business hours, including any records handled or maintained for the Companies by any other company or entity. 4. Until CITBC has advised the Companies to the contrary after the occurrence of an Event of Default, the Companies may and will enforce, collect and receive all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at the Companies' expense; such privilege shall terminate automatically upon the institution by or against the Companies of any proceeding under any bankruptcy or insolvency law or, at the election of CITBC, upon the occurrence of any other Event of Default and until such Event of 19 22 Default is waived in writing by CITBC or cured to CITBC's satisfaction. Any checks, cash, notes or other instruments or property received by the Companies with respect to any Accounts shall be held by them in trust for CITBC, separate from their own property and funds, and immediately turned over to CITBC with proper assignments or endorsements by deposit to the special depository accounts in CITBC's name designated by CITBC for such purposes (the "Depository Accounts"). All amounts received by CITBC in payment of Accounts ("Collection") will be credited to the Companies' appropriate Revolving Loan Account upon CITBC's receipt of "good funds" at CITBC's bank account in New York, New York on the Business Day of receipt if received no later than 1:00 p.m. or on the next succeeding Business Day if received after 1:00 p.m. However the Companies' Revolving Loan Accounts will be charged monthly with the cost of one (1) additional Business Days on all such Collections at the interest rate (based upon the Chase Bank Rate) applicable to Revolving Loans. No checks, drafts or other instrument received by CITBC shall constitute final payment to CITBC unless and until such instruments have actually been collected. 5. Each of the Companies agrees to notify CITBC promptly of any matters materially affecting the value, enforceability or collectability of any Account and of all material customer disputes, offsets, defenses, counterclaims, returns, rejections and all reclaimed or repossessed merchandise or goods. Each of the Companies agrees to issue credit memoranda promptly (with duplicates to CITBC upon request after the occurrence of an Event of Default) upon accepting returns or granting allowances, and may continue to do so until CITBC has notified the Companies that an Event of Default has occurred and that all future credits or allowances are to be made only after CITBC's prior written approval. Upon the occurrence of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction and on notice from CITBC, the Companies agree that all returned, reclaimed or repossessed merchandise or goods shall be set aside by the Companies, marked with CITBC's name and held by the Companies for CITBC's account as owner and assignee. 6. (a) Subject to the provisions of paragraph (b) below, CITBC shall maintain a separate account on its books in each of the Companies' names (herein each a "Revolving Loan Account" and collectively the "Revolving Loan Accounts") in which the Companies will be charged with loans and advances made by CITBC to them or for their account, and with any other Obligations, including any and all costs, expenses and reasonable attorney's fees which CITBC may incur in connection with the exercise by or for CITBC of any of the rights or powers herein conferred upon CITBC, or in the prosecution or defense of any action or proceeding to enforce or protect any rights of CITBC in connection with this Financing Agreement or the Collateral assigned hereunder, or any Obligations owing to CITBC by the Companies. Each of the Companies will be credited with all amounts received by CITBC from them or from others for their account, including, as above set forth, all amounts received by CITBC in payment of assigned Accounts and such amounts will be applied to payment of the Obligations. In no event shall prior recourse to any Accounts or other 20 23 security granted to or by the Companies be a prerequisite to CITBC's right to demand payment of any Obligation. Further, it is understood that CITBC shall have no obligation whatsoever to perform in any respect any of the Companies' contracts or obligations relating to the Accounts. (b) In order to utilize the collective borrowing powers of Simula and its subsidiaries other than AII (collectively the "Collective Borrowers") in the most efficient and economical manner, and in order to facilitate the handling of the accounts of the Collective Borrowers on CITBC's books, the Collective Borrowers have requested, and CITBC has agreed to handle accounts of the Collective Borrowers on CITBC's books on a combined basis, all in accordance with the following provisions: (i) In lieu of maintaining separate accounts on CITBC's books in the name of each of the Collective Borrowers, CITBC shall maintain one account under the name: Simula, Inc. Intercompany Account (herein the "Collective Account"). Confirmatory assignments of Accounts will continue to be made to CITBC by each of the Collective Borrowers. Loans and advances made by CITBC to any of the Collective Borrowers will be charged to the Collective Account indicated above, along with any charges and expenses under this Financing Agreement. The Collective Account will be credited, with all amounts received by CITBC from any of the Collective Borrowers or from others for their account including all amounts received by CITBC in payment of Accounts assigned to CITBC value date thereof as provided in this Financing Agreement; (ii) Each month CITBC will render to the Collective Borrowers one extract of the combined Collective Account, which shall be deemed to be an account stated as to each of the Collective Borrowers and which will be deemed correct and accepted by all of the Collective Borrowers unless CITBC receives a written statement of exceptions from them within thirty (30) days after such extract has been rendered by CITBC. It is expressly understood and agreed by each of the Collective Borrowers that CITBC shall have no obligation to account separately to any of the Collective Borrowers; (iii) Requests for loans and advances may be made by Simula as agent for the Collective Borrowers and CITBC is hereby authorized and directed to accept, honor and rely on such instructions and requests, subject to the limitation and provisions set forth in this Financing Agreement. It is expressly understood and agreed by each of the Collective Borrowers that CITBC shall have no responsibility to inquire into the correctness of the apportionment, allocation, or disposition of (x) any loans and advances made to any of the Collective Borrowers or (y) any of CITBC's expenses and charges relating thereto. All loans and advances are made for the Collective Account; (iv) The Collective Borrowers jointly and severally unconditionally guarantee to CITBC the prompt payment in full of (A) all loans and advances made and to be made by CITBC to any of them under this Financing Agreement, as well as (B) all other Obligations of the Collective Borrowers to CITBC and hereby expressly confirm in all respects the Guaranties executed by each of the Collective Borrowers in CITBC's favor as more fully set forth therein; (v) All Accounts assigned to CITBC by any of the Collective Borrowers and any other collateral security now or hereafter given to CITBC by any of the Collective Borrowers (be it Accounts or otherwise), shall secure all loans and advances made by CITBC to any 21 24 of the Collective Borrowers, and shall be deemed to be pledged to CITBC as security for any and all other Obligations of the Collective Borrowers to CITBC as set forth under this Financing Agreement, the Guaranties, or any other agreements between CITBC and any of the Collective Borrowers; (vi) It is understood that the handling of the accounts of the Collective Borrowers in a combined fashion, as more fully set forth herein, is done solely as an accommodation to the Collective Borrowers and at their request and at CITBC's discretion, and that CITBC shall incur no liability to the Collective Borrowers as a result hereof. To induce CITBC to do so, and in consideration thereof, each of the Collective Borrowers hereby agrees to indemnify CITBC and hold CITBC harmless against any and all liability, expense, loss or claim of damage or injury, made against CITBC by any of the Collective Borrowers or by any third party whosoever, arising from or incurred solely by reason of (1) the method of handling the accounts of the Collective Borrowers as herein provided, (2) CITBC relying on any instructions of any of the Collective Borrowers, or (3) any other action taken by CITBC in accordance with this subparagraph (b) of Paragraph 6 of Section 3 of this Financing Agreement; and (vii) The foregoing request was made because the Collective Borrowers are engaged in an integrated operation that requires financing on a basis permitting the availability of credit from time to time to each of the Collective Borrowers as required for the continued successful operation of each of the Collective Borrowers and the integrated operation. Each of the Collective Borrowers expects to derive benefit, directly or indirectly, from such availability since the successful operation of each of the Collective Borrowers is dependent on the continued successful performance of the functions of the integrated group. In addition, the Companies have informed CITBC that: (a) Simula, to increase the efficiency and productivity of each of the other Collective Borrowers, has centralized in itself a cash management system which entails, in part, central disbursement and operating accounts in which it provides the working capital needs of each of the other Collective Borrowers and manages and timely pays the accounts payable of each other Collective Borrowers; (b) the Collective Borrowers, taken together on a consolidated basis, are further enhancing their collective operating efficiencies by obtaining credit on the basis of their consolidated financial condition; and (c) since all of the Collective Borrowers are now engaged in an integrated operation that requires financing on an integrated basis and since each Collective Borrower expects to benefit from the continued successful performance of such integrated operations and in order to best utilize the collective borrowing powers of each Collective Borrower in the most effective and cost efficient manner and to avoid adverse effects on the operating efficiencies of each Collective Borrower and the existing back-office practices of the Collective Borrowers, each Collective Borrower has requested that all Revolving Loans and advances be disbursed solely upon the request of Simula and to bank accounts managed solely by it and that it will manage for the benefit of each Collective Borrower the expenditure and usage of such funds. 7. After the end of each month, CITBC shall promptly send the Companies statements showing the accounting for the charges, loans, advances and other transactions 22 25 occurring between CITBC and the Companies during that month. The monthly statements shall be deemed correct and binding upon the Companies and shall constitute an account stated between the Companies and CITBC unless CITBC receives a written statement of the exceptions within thirty (30) days of the date of the monthly statement. 8. In the event that the sum of (i) the outstanding balance of Revolving Loans and (ii) outstanding balance of Letters of Credit exceeds (x) as to any Company the maximum amount thereof available to such Company under Section 3 and 5 hereof or (y) for all of the Companies the Line of Credit (herein the amount of any such excess shall be referred to as the "Excess") such Excess shall be due and payable to CITBC immediately upon CITBC's demand therefor. SECTION 4. TERM LOAN TERM LOAN 1. The Companies hereby agree to execute and deliver to CITBC the Term Loan Promissory Note, in the form of Exhibit A attached hereto, to evidence the Term Loan to be extended by CITBC. 2. Upon receipt of such Term Loan Promissory Note, CITBC hereby agrees to extend to The Companies the Term Loan in the principal amount of $5,000,000. 3. The principal amount of the Term Loan shall be repaid to CITBC by the Companies, if not previously repaid pursuant to Paragraphs 5 or 6 below, by equal monthly principal installments of $555,556 each, the first installment due on the date which is 90 days after the Closing Date, and monthly on the same day of the month thereafter, followed by a payment due on the final maturity date of the remaining principal balance together with accrued and unpaid interest, due and payable on August 31, 2000. 4. In the event this Financing Agreement or the Line of Credit is terminated by either CITBC or the Companies for any reason whatsoever, the Term Loan shall become due and payable on the effective date of such termination notwithstanding any provision to the contrary in the Promissory Note or this Financing Agreement. 5. The Companies may prepay at any time, at its option, in whole or in part, without penalty or premium, the Term Loan, provided that on each such prepayment, the Companies shall pay the accrued interest on the principal so prepaid to the date of such prepayment. 23 26 6. The Companies shall prepay the Term Loan in full upon the earlier of the consummation of the Divestiture or the sale of all or substantially all of the assets of a Company, in either case from the proceeds thereof. 7. Each prepayment shall be applied to the then last maturing installments of principal of the Term Loan. 8. Each of the Companies hereby authorizes CITBC to charge its Revolving Loan Account with the amount of all amounts due under this Section 4 as such amounts become due. Each of the Companies confirms that any charges which CITBC may so make to its account as herein provided will be made as an accommodation to the Companies and solely at CITBC's discretion. SECTION 5. LETTERS OF CREDIT In order to assist the Companies in establishing or opening Letters of Credit with an Issuing Bank to cover the purchase of inventory, equipment or otherwise, the Companies have requested CITBC to join in the applications for such Letters of Credit, and/or guarantee payment or performance of such Letters of Credit and any drafts or acceptances thereunder through the issuance of the Letters of Credit Guaranty, thereby lending CITBC's credit to the Companies and CITBC has agreed to do so. These arrangements shall be handled by CITBC subject to the terms and conditions set forth below. 1. Within the Line of Credit and Availability, CITBC shall assist the Companies in obtaining Letter(s) of Credit in an amount not to exceed the Letter of Credit Sub-Line in the aggregate outstanding at any one time. CITBC's assistance for amounts in excess of the limitation set forth herein shall at all times and in all respects be in CITBC's sole discretion. It is understood that the form and purpose of each Letter of Credit must be acceptable to CITBC in its reasonable business judgment. Any and all outstanding Letters of Credit shall be treated as a Revolving Loan for Availability purpose. Notwithstanding anything herein to the contrary, upon the occurrence of a Default and/or Event of Default, CITBC's assistance in connection with the Letter of Credit Guaranty shall be in CITBC's sole discretion unless such Default and/or Event of Default is cured to CITBC's satisfaction or waived by CITBC in writing. 2. CITBC shall have the right, without notice to the Companies, to charge the Companies' Revolving Loan Accounts on CITBC's books with the amount of any and all indebtedness, liability or obligation of any kind incurred by CITBC under the Letters of Credit Guaranty at the earlier of a) payment by CITBC under the Letters of Credit Guaranty, or b) the occurrence of an Event of Default. Any amount charged to Companies' Revolving Loan Accounts shall be deemed a Revolving Loan hereunder and shall incur interest at the rate provided in Section 8, Paragraph 1 of this Financing Agreement. 24 27 3. Each of the Companies jointly and severally unconditionally indemnifies CITBC and holds CITBC harmless from any and all loss, claim or liability incurred by CITBC arising from any transactions or occurrences relating to Letters of Credit established or opened for the Companies' account, the collateral relating thereto and any drafts or acceptances thereunder, and all Obligations thereunder, including any such loss or claim due to any action taken by any Issuing Bank, other than for any such loss, claim or liability arising out of the gross negligence or willful misconduct by CITBC under the Letters of Credit Guaranty. Each of the Companies further agrees to jointly and severally hold CITBC harmless from any errors or omission, negligence or misconduct by the Issuing Bank.. The Companies' unconditional obligation to CITBC hereunder shall not be modified or diminished for any reason or in any manner whatsoever, other than as a result of CITBC's gross negligence or willful misconduct. Each of the Companies agrees that any charges incurred by CITBC for their account by the Issuing Bank shall be conclusive on CITBC and may be charged to their account. 4. CITBC shall not be responsible for: the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; any difference or variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment is made; partial or incomplete shipment, or failure or omission to ship any or all of the goods referred to in the Letters of Credit or documents; any deviation from instructions; delay, default, or fraud by the shipper and/or anyone else in connection with the Collateral or the shipping thereof; or any breach of contract between the shipper or vendors and the Companies. Furthermore, without being limited by the foregoing, CITBC shall not be responsible for any act or omission with respect to or in connection with any Collateral. 5. Each of the Companies agrees that any action taken by CITBC, if taken in good faith, or any action taken by any Issuing Bank, under or in connection with the Letters of Credit, the guarantees, the drafts or acceptances, or the Collateral, shall be binding on the them and shall not put CITBC in any resulting liability to the Companies. In furtherance thereof, CITBC shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute any and all steamship or airways guaranties (and applications therefore), indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the Issuing Bank 25 28 shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from CITBC, all without any notice to or any consent from the Companies. 6. Without CITBC's express consent and endorsement in writing, each of the Companies agrees: a) not to execute any and all applications for steamship or airway guaranties, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or documents; or to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; and b) after the occurrence of an Event of Default which is not cured within any applicable grace period, if any, or waived by CITBC, not to i) clear and resolve any questions of non-compliance of documents, or ii) give any instructions as to acceptances or rejection of any documents or goods. 7. Each of the Companies agrees that any necessary import, export or other licenses or certificates for the import or handling of the Collateral will have been promptly procured; all foreign and domestic governmental laws and regulations in regard to the shipment and importation of the Collateral, or the financing thereof will have been promptly and full complied with; and any certificates in that regard that CITBC may at any time request will be promptly furnished. In this connection, each of the Companies warrants and represents that all shipments made under any such Letters of Credit are in accordance with the laws and regulations of the countries in which the shipments originate and terminate, and are not prohibited by any such laws and regulations. The Companies assume all risk, liability and responsibility for, and agrees to pay and discharge, all present and future local, state, federal or foreign taxes, duties, or levies. Any embargo, restriction, laws, customs or regulations of any country, state, city, or other political subdivision, where the Collateral is or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the Companies' risk, liability and responsibility. 8. Upon any payments made to the Issuing Bank under the Letter of Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by the Companies to the Issuing Bank in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to CITBC and apply in all respects to CITBC and shall be in addition to any rights, remedies, duties or obligations contained herein. SECTION 6. COLLATERAL 1. As security for the prompt payment in full of all loans and advances made and to be made to the Companies from time to time by CITBC pursuant hereto, as well as to 26 29 secure the payment in full of the other Obligations, each of the Companies hereby pledges and grants to CITBC a continuing general lien upon and security interest in all of its: (a) present and hereafter acquired Inventory; (b) present and hereafter acquired Equipment; (c) present and future Accounts; (d) present and future Documents of Title; (e) present and future General Intangibles; (f) Real Estate; and (g) present and future Other Collateral. 2. The security interests granted hereunder shall extend and attach to: (a) All Collateral which is presently in existence and which is owned by the Companies or in which the Companies have any interest, whether held by them or others for their account, and, if any Collateral is Equipment, whether the Companies' interest in such Equipment is as owner or lessee or conditional vendee; (b) All Equipment whether the same constitutes personal property or fixtures, including, but without limiting the generality of the foregoing, all dies, jigs, tools, benches, tables, accretions, component parts thereof and additions thereto, as well as all accessories, motors, engines and auxiliary parts used in connection with or attached to the Equipment; and (c) All Inventory and any portion thereof which may be returned, rejected, reclaimed or repossessed by either CITBC or the Companies from the Companies' customers, as well as to all supplies, goods, incidentals, packaging materials, labels and any other items which contribute to the finished goods or products manufactured or processed by the Companies, or to the sale, promotion or shipment thereof. 3. The Companies agree to safeguard, protect and hold all Inventory for CITBC's account and make no disposition thereof except in the regular course of the business of the Companies as herein provided. Until CITBC has given the Companies notice to the contrary, as provided for below, any Inventory may be sold and shipped by the Companies to their customers in the ordinary course of their business, on open account and on terms currently being extended by them to their customers, provided that all proceeds of all sales 27 30 (including cash, accounts receivable, checks, notes, instruments for the payment of money and similar proceeds) are forthwith transferred, endorsed, and turned over and delivered to CITBC in accordance with Section 3, Paragraph 4 of this Financing Agreement. CITBC shall have the right to withdraw this permission at any time upon the occurrence of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction, in which event no further disposition shall be made of the Inventory by the Companies without CITBC's prior written approval. Cash sales or sales of inventory in which a lien upon, or security interest in, Inventory is retained by the Companies shall be made by the Companies only with the approval of CITBC, and the proceeds of such sales or sales of Inventory for cash shall not be commingled with the Companies' other property, but shall be segregated, held by the Companies in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by the Companies to CITBC in the identical form received by the Companies by deposit to the Depository Accounts. Upon the sale, exchange, or other disposition of Inventory, as herein provided, the security interest in the Companies' Inventory provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. 4. Each of the Companies agrees at its own cost and expense to keep the Equipment in as good and substantial repair and condition as the same is now or at the time the lien and security interest granted herein shall attach thereto, reasonable wear and tear excepted, making any and all repairs and replacements when and where necessary. Each of the Companies also agrees to safeguard, protect and hold all Equipment for CITBC's account and make no disposition thereof unless they first obtain the prior written approval of CITBC. Any sale, exchange or other disposition of any Equipment shall only be made by the Companies with the prior written approval of CITBC, and the proceeds of any such sales shall not be commingled with the Companies' other property, but shall be segregated, held by the Companies in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by the Companies to CITBC in the identical form received by the Companies by deposit to the Depository Accounts. Upon the sale, exchange, or other disposition of the Equipment, as herein provided, the security interest provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sales, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. Notwithstanding anything hereinabove contained to the contrary, the Companies may sell, exchange or 28 31 otherwise dispose of obsolete Equipment or Equipment no longer needed in the Companies' operations, provided, however, that (a) the greater of the then book value or fair market value of the Equipment so disposed of does not exceed $250,000 in the aggregate for the Companies in any Fiscal Year and (b) the proceeds of such sales or dispositions are delivered to CITBC in accordance with the foregoing provisions of this paragraph, except that the Companies may retain and use such proceeds to purchase forthwith replacement Equipment which the Companies determine in their reasonable business judgment to have a collateral value at least equal to the Equipment so disposed of or sold, provided, however, that the aforesaid right shall automatically cease upon the occurrence of an Event of Default which is not cured within any applicable grace period or waived. 5. The rights and security interests granted to CITBC hereunder are to continue in full force and effect, notwithstanding the termination of this Financing Agreement or the fact that any account maintained in the Companies' name on the books of CITBC may from time to time be temporarily in a credit position, until the final payment in full to CITBC of all Obligations and the termination of this Financing Agreement. Any delay, or omission by CITBC to exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed a waiver of any other right, unless such waiver be in writing and signed by CITBC. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. 6. To the extent that the Obligations are now or hereafter secured by any assets or property other than the Collateral or by the guarantee, endorsement, assets or property of any other person, then CITBC shall have the right in its sole discretion to determine which rights, security, liens, security interests or remedies CITBC shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or any of CITBC's rights hereunder. 7. Any reserves or balances to the credit of the Companies and any other property or assets of the Companies in the possession of CITBC may be held by CITBC as security for any Obligations and applied in whole or partial satisfaction of such Obligations when due. The liens and security interests granted herein and any other lien or security interest CITBC may have in any other assets of the Companies, shall secure payment and performance of all now existing and future Obligations. CITBC may in its discretion charge any or all of the Obligations to the Revolving Loan Accounts of the Companies when due. 8. This Financing Agreement and the obligation of the Companies to perform all of its covenants and obligations hereunder are further secured by mortgage(s), deed(s) of trust or assignment(s) on the Real Estate. 29 32 9. The Companies shall give to CITBC from time to time such mortgage(s), deed(s) of trust or assignment(s) on the Real Estate or real estate acquired after the date hereof as CITBC shall require to obtain a valid first lien thereon subject only to those exceptions of title as set forth in future title insurance policies that are satisfactory to CITBC. 10. The Companies shall give to CITBC, and/or shall cause the appropriate party to give to CITBC, from time to time such pledge or security agreements with respect to General Intangibles and capital stock of the Companies and any and all of their subsidiaries as CITBC shall require to obtain valid first liens thereon. SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 1. Each of the Companies hereby warrants and represents and/or covenants that: i) the fair value of its assets exceeds the book value of its liabilities; ii) it is generally able to pay its debts as they become due and payable; and iii) it does not have unreasonably small capital to carry on its business as it is currently conducted absent extraordinary and unforeseen circumstances. Each of the Companies further warrants and represents that Schedule 2 hereto correctly and completely sets forth its chief executive office and all of its Collateral locations; and except for the Permitted Encumbrances, the security interests granted herein constitute and shall at all times constitute the first and only liens on the Collateral; that, except for the Permitted Encumbrances, the Companies are or will be at the time additional Collateral is acquired by them, the absolute owner of the Collateral with full right to pledge, sell, consign, transfer and create a security interest therein, free and clear of any and all claims or liens in favor of others; that the Companies will at their expense forever warrant and, at CITBC's request, defend the same from any and all claims and demands of any other person other than the Permitted Encumbrances; that the Companies will not grant, create or permit to exist, any lien upon or security interest in the Collateral, or any proceeds thereof, in favor of any other person other than the holders of the Permitted Encumbrances; and that the Equipment does not comprise a part of its Inventory and that the Equipment is and will only be used by the Companies in their business and will not be held for sale or lease, or removed from its premises, or otherwise disposed of by the Companies without the prior written approval of CITBC except as otherwise permitted in Section 6, Paragraph 4 of this Financing Agreement. 2. The Companies agree to maintain books and records pertaining to the Collateral in such detail, form and scope as CITBC shall reasonably require. The Companies agree that, upon reasonable advance notice (unless CITBC shall deem such notice unadvisable in its reasonable commercial judgment), CITBC or its agents may enter upon the Companies' premises at any time during normal business hours, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto. The Companies agree to afford CITBC prior written notice of any change in the location of any Collateral, other than to locations, that as of the date hereof, are known to CITBC and at which CITBC has filed financing statements and otherwise fully perfected its liens thereon. 30 33 Each of the Companies is also to advise CITBC promptly, in sufficient detail, of any material adverse change relating to the type, quantity or quality of the Collateral or on the security interests granted to CITBC therein. 3. Each of the Companies agrees to: execute and deliver to CITBC, from time to time, solely for CITBC's convenience in maintaining a record of the Collateral, such written statements, and schedules as CITBC may reasonably require, designating, identifying or describing the Collateral pledged to CITBC hereunder. The Companies' failure, however, to promptly give CITBC such statements, or schedules shall not affect, diminish, modify or otherwise limit CITBC's security interests in the Collateral. 4. The Companies agree to comply with the requirements of all state and federal laws in order to grant to CITBC valid and perfected first security interests in the Collateral, subject only to the Permitted Encumbrances. CITBC is hereby authorized by the Companies to file any financing statements covering the Collateral whether or not the Companies' signature appears thereon. The Companies agree to do whatever CITBC may reasonably request, from time to time, by way of: filing notices of liens, financing statements, amendments, renewals and continuations thereof; cooperating with CITBC's custodians; keeping stock records; transferring proceeds of Collateral to CITBC's possession; and performing such further acts as CITBC may reasonably require in order to effect the purposes of this Financing Agreement. In furtherance of the foregoing, in the event that CITBC determines that any additional subsidiaries of any of the Companies are to parties hereto, the Companies shall cause such subsidiary to become a party hereto in accordance with the general intent of the this Paragraph 4. 5.(a) The Companies agree to maintain insurance on the Real Estate, Equipment and Inventory, and with respect to products liability, under such policies of insurance, with such insurance companies, in such reasonable amounts and covering such insurable risks as are at all times reasonably satisfactory to CITBC, and, in any event, with respect to products liability insurance, with coverage at least equal to that maintained as of the Closing Date. All policies covering the Real Estate, Equipment and Inventory are, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, to be made payable to CITBC, in case of loss, under a standard non-contributory "mortgagee", "lender" or "secured party" clause and are to contain such other provisions as CITBC may require to fully protect CITBC's interest in the Real Estate, Inventory and Equipment and to any payments to be made under such policies. All original policies or true copies thereof are to be delivered to CITBC, premium prepaid, with the loss payable endorsement in CITBC's favor, and shall provide for not less than thirty (30) days prior written notice to CITBC of the exercise of any right of cancellation. At the Companies' request, or if the Companies fail to maintain such insurance, CITBC may arrange for such insurance, but at the Companies' expense and without any responsibility on CITBC's part for: obtaining the insurance, the solvency of the insurance companies, the adequacy of 31 34 the coverage, or the collection of claims. Upon the occurrence of an Event of Default which is not waived or cured to CITBC's satisfaction, CITBC shall, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, have the sole right, in the name of CITBC or the Companies, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. (b)(i) In the event of any loss or damage by fire or other casualty, insurance proceeds relating to Inventory of any Company shall first reduce such Company's Revolving Loans and then the Term Loan; ii) In the event any part of a Company's Real Estate or Equipment is damaged by fire or other casualty and the insurance proceeds for such damage or other casualty (the "Proceeds") is less than or equal to $100,000.00, CITBC shall promptly apply such Proceeds to reduce such Company's outstanding balance in its Revolving Loan Account. iii) As long as an Event of Default has not occurred (which is not cured to CITBC's satisfaction), the Companies have sufficient business interruption insurance to replace the lost profits of any of the Companies' facilities, and the Proceeds are in excess of $100,000.00, such Company may elect (by delivering written notice to CITBC) to replace, repair or restore such Real Estate or Equipment to substantially the equivalent condition prior to such fire or other casualty as set forth herein. If the Companies do not, or cannot, elect to use the Proceeds as set forth above, CITBC may, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to the payment of the Obligations in such manner and in such order as CITBC may reasonably elect. iv) If a Company elects to use the Proceeds for the repair, replacement or restoration of any Real Estate and/or Equipment, and there is then no Event of Default, i) proceeds of insurance on Real Estate and/or Equipment in excess of $100,000.00 will be applied to the reduction of the Revolving Loans of such Company and ii) CITBC may set up a reserve against Availability for an amount equal to the proceeds referred to in clause i) hereof. The reserve will be reduced dollar-for-dollar upon receipt of non-cancelable executed purchase orders, delivery receipts or contracts for the replacement, repair or restoration of Real Estate and/or Equipment and disbursements in connection therewith. Prior to the commencement of any restoration, repair or replacement of Real Estate, the Companies shall provide CITBC with a restoration plan and a total budget certified by an independent third party experienced in construction costing. If there are insufficient Proceeds to cover the cost of restoration as so determined, the Companies shall be responsible for the amount of any such insufficiency, prior to the commencement of 32 35 restoration and shall demonstrate evidence of such before the reserve will be reduced. Completion of restoration shall be evidenced by a final, unqualified certification of the design architect employed, if any; an unconditional Certificate of Occupancy, if applicable; such other certification as may be required by law; or if none of the above is applicable, a written good faith determination of completion by the Companies (herein collectively the "Completion"). Upon Completion, any remaining reserve as established hereunder will be automatically released. (v) The Companies agree to pay any reasonable costs, fees or expenses which CITBC may reasonably incur in connection herewith. 6. Each of the Companies agrees to pay, when due, all taxes, assessments, claims and other charges (herein "taxes") lawfully levied or assessed upon the Companies or the Collateral and if such taxes remain unpaid after the date fixed for the payment thereof unless such taxes are being diligently contested in good faith by the Companies by appropriate proceedings or if any lien shall be claimed thereunder x) for taxes due the United States of America or y) which in CITBC's opinion might create a valid obligation having priority over the rights granted to CITBC herein, CITBC may, on the Companies' behalf, pay such taxes, and the amount thereof shall be an Obligation secured hereby and due to CITBC on demand. 7. Each of the Companies: (a) agrees to comply with all acts, rules, regulations and orders of any legislative, administrative or judicial body or official, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of the Companies' business; provided that the Companies may contest any acts, rules, regulations, orders and directions of such bodies or officials in any reasonable manner which will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's rights or priority in the Collateral; (b) agrees to comply with all environmental statutes, acts, rules, regulations or orders as presently existing or as adopted or amended in the future, applicable to the ownership and/or use of its real property and operation of its business, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of the business of the Companies. Each of the Companies hereby jointly and severally indemnifies CITBC and agrees to defend and hold CITBC harmless from and against any and all loss, damage, claim, liability, injury or expense which CITBC may sustain or incur (other than as a result of actions of CITBC) in connection with: any claim or expense asserted against CITBC as a result of any environmental pollution, hazardous material or environmental clean-up of the Companies' real property; or any claim or expense which results from the Companies' operations (including, but not limited to, the Companies' off-site disposal practices) and the Companies further agree that this indemnification shall survive termination of this Financing Agreement as well as the payment of all Obligations or amounts payable hereunder; and (c) shall not be deemed to 33 36 have breached any provision of this Paragraph 7 if (i) the failure to comply with the requirements of this Paragraph 7 resulted from good faith error or innocent omission, (ii) the Companies promptly commence and diligently pursues a cure of such breach and (iii) such failure is cured within fifteen (15) business days following the Companies' receipt of notice of such failure. 8. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, the Companies agree that, unless CITBC shall have otherwise consented in writing, the Companies will furnish to CITBC, within ninety (90) days after the end of each Fiscal Year of the Companies, an audited Consolidated Balance Sheet and a Consolidating Balance Sheet which reconciles to the Consolidated Balance Sheet, as at the close of such year, and statements of profit and loss, cash flow and reconciliation of surplus of Parent, the Companies and all subsidiaries of each for such year, audited (as to the consolidated financial statements) by independent public accountants selected by the Companies and satisfactory to CITBC; within sixty (60) days after the end of each Fiscal Quarter a Consolidated Balance Sheet and Consolidating Balance Sheet as at the end of such period and statements of profit and loss, cash flow and surplus of Parent, the Companies and all subsidiaries of each, certified by an authorized financial or accounting officer of the Companies or of Parent; and within thirty (30) days after the end of each month a Consolidated Balance Sheet as at the end of such period and statements of profit and loss, cash flow and surplus of the Companies and all subsidiaries for such period, certified by an authorized financial or accounting officer of the Companies or of Parent; and from time to time, such further information regarding the business affairs and financial condition of the Parent, the Companies and/or any subsidiaries thereof as CITBC may reasonably request, including without limitation (a) the accountant's management practice letter and (b) annual cash flow projections in form satisfactory to CITBC. Each financial statement which the Companies are required to submit hereunder must be accompanied by an officer's certificate, signed by the President, Vice President, Controller, or Treasurer of the Companies or of Parent, pursuant to which any one such officer must certify that: (i) the financial statement(s) fairly and accurately represent(s) the Companies' financial condition at the end of the particular accounting period, as well as the Companies' operating results during such accounting period, subject to year-end audit adjustments; (ii) during the particular accounting period: (x) there has been no Default or Event of Default under this Financing Agreement, provided, however, that if any such officer has knowledge that any such Default or Event of Default, has occurred during such period, the existence of and a detailed description of same shall be set forth in such officer's certificate; and (y) the Companies have not received any notice of cancellation with respect to its property insurance policies; and (iii) the exhibits attached to such financial statement(s) constitute detailed calculations showing compliance with all financial covenants contained in this Financing Agreement. In addition, commencing September 30, 2000, and on each September 30 thereafter during the term hereof, the Companies shall provide to CITBC updated annual financial projections for the next Fiscal Year. 34 37 9. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, the Companies agree that, without the prior written consent of CITBC, except as otherwise herein provided, the Companies will not: A. Mortgage, assign, pledge, transfer or otherwise permit any lien, charge, security interest, encumbrance or judgment, (whether as a result of a purchase money or title retention transaction, or other security interest, or otherwise) to exist on any of its assets or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for the Permitted Encumbrances; B. Incur or create any Indebtedness other than the Permitted Indebtedness; C. Borrow any money on the security of the Collateral from sources other than CITBC; D. Sell, lease, assign, transfer or otherwise dispose of i) Collateral, except for the Divestiture and except as otherwise specifically permitted by this Financing Agreement, or ii) either all or substantially all of their assets, which do not constitute Collateral; E. Merge, consolidate or otherwise alter or modify its corporate name, principal place of business, structure, status or existence, or enter into or engage in any operation or activity materially different from that presently being conducted by the Companies, except that the Companies may (i) merge with each other and/or (ii) change their corporate name or address; provided that in any instance under clauses (i) and (ii) (x) the Companies shall give CITBC thirty (30) days prior written notice thereof and (y) the Companies shall execute and deliver prior to or simultaneously with any such action any and all documents and agreements requested by CITBC (including, without limitation, any and all U.C.C. financing statements) to confirm (A) the assumption by the surviving corporation of all Obligations to CITBC of the other Company so merged, (B) the continuation and preservation of all security interests and liens granted to CITBC hereunder and (C) that such surviving corporation adopts, ratifies and confirms its agreement to be bound by and comply with this Financing Agreement; F. Assume, guarantee, endorse, or otherwise become liable upon the obligations of any person, firm, entity or corporation, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; G. Make any advance or loan to, or any investment in, any firm, entity, person or corporation, except for: (i) loans and advances by and among the Companies; and (ii) after repayment in full of the Term Loan and any Revolving Loans to AII, amounts in an aggregate not to exceed $500,000 per 35 38 Fiscal Year if, after giving effect thereto, the Companies have aggregate Availability of at least $2,000,000. 10. Until termination of the Financing Agreement and payment and satisfaction in full of all Obligations hereunder, the Companies shall: (a) not have net income (determined in accordance with GAAP) for any Fiscal Quarter of less than zero. (b) maintain at the end of each Fiscal Quarter a consolidated Fixed Charge Coverage Ratio of the Companies of not less than the following: Fiscal Quarter ended 3/31/00 - 0.90:1.00 Fiscal Quarter ended 6/30/00 - 1.15:1.00 Fiscal Quarter ended 9/30/00 - 1.10:1.00 Fiscal Quarter ended 12/31/00 - 1.20:1.00 Thereafter, calculated on a rolling four quarter basis - 1.25:1.00 (c) maintain, on a cumulative basis, at the end of each Fiscal Quarter EBITDA of at least the following amounts: Fiscal Quarter ended 3/31/00 - $3,000,000 Fiscal Quarter ended 6/30/00 - $6,000,000 Fiscal Quarter ended 9/30/00 - $9,000,000 Fiscal Quarter ended 12/31/00 - $12,000,000 Thereafter, calculated on a rolling four quarter basis - $12,000,000 (d) maintain at the end of each month EBITDA of at least $500,000. (e) in the event that the stock or all or substantially all of assets of AIC shall have been sold, together with CITBC, reset the financial covenant amounts in Sub-Paragraph (c) above to take into account the effects of such sale, which reset shall include both a change in such amounts prospectively as to the projected financial performance of AIC and retrospectively to the beginning of the then current Fiscal Year to the extent of the then Fiscal Year-to-date actual financial performance of AIC. 11. Without the prior written consent of CITBC, the Companies will not: a) enter into any Operating Lease (other than with respect to real property) if after giving effect thereto the aggregate obligations with respect to Operating Leases of the Companies during any Fiscal Year would exceed $200,000 or b) contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with 36 39 respect to Capital Expenditures (whether subject to a security interest or otherwise) during any period below in the aggregate amount for the Companies in excess of the amount set forth for such period: a) $3,000,000 for the Fiscal Year ending December 31, 2000; b) $3,500,000 for the Fiscal Year ending December 31, 2001; c) $4,000,000 for the Fiscal Year ending December 31, 2002; and for each Fiscal Year thereafter. 12. In the event the Divestiture has not yet occurred by January 31, 2000, then the Companies shall maintain a minimum amount of unused Availability of $1,000,000, and if the Divestiture has not occurred by February 29, 2000, then the Companies shall maintain a minimum amount of unused Availability of $2,000,000. 13. The Companies agree to advise CITBC in writing of: a) all expenditures (actual or anticipated) in excess of $150,000.00 for x) environmental clean-up, y) environmental compliance or z) environmental testing and the impact of said expenses on the Companies' Working Capital; and b) any notices the Companies receive from any local, state or federal authority advising the Companies of any environmental liability (real or potential) stemming from the Companies' operations, premises, waste disposal practices, or waste disposal sites used by the Companies and to provide CITBC with copies of all such notices if so required. 14. Without the prior written consent of CITBC, the Companies agree that they will not enter into any transaction, including, without limitation, any purchase, sale, lease, loan or exchange of property with the Parent, any of the Companies or any subsidiary or affiliate of either the Companies or Parent unless any such transaction is conducted on an arms-length basis and on terms no less beneficial to the Companies than the Companies would have obtained from any entity that was not related in any fashion with the Companies. 15. The Companies shall take all action reasonably necessary to assure that their computer-based systems are able to effectively process date-sensitive data functions. The Companies represent and warrant that the "Year 2000" problem (that is, the inability of certain computer applications to recognize and properly perform date-sensitive functions involving certain dates on or about or subsequent to December 31, 1999) will not result in a material adverse effect on their business, assets or operations. The Companies reasonably anticipate that all computer applications which are material to their business will, on a timely basis, be able to properly perform date-sensitive functions for all dates on and after January 1, 2000. Upon CITBC's request from time to time, the Companies shall provide to CITBC assurances that the Companies' computer systems and software are or will be Year 2000 compliant on a timely basis, all in form and substance reasonably satisfactory to CITBC. 37 40 SECTION 8. INTEREST, FEES AND EXPENSES 1(a). Interest on the Revolving Loan shall be payable monthly as of the end of each month and shall be an amount equal to (a) the Chase Bank Rate per annum on the average of the net balances owing by the Companies to CITBC in the Companies' Revolving Loan Account(s) at the close of each day during such month on balances other than Libor Loans and (b) two and four-tenths percent (2.4%) plus the applicable Libor on any Libor Loan, on a per annum basis, on the average of the net balances owing by the Companies to CITBC in the Companies' Revolving Loan Account(s) at the close of each day during such month. In the event of any change in said Chase Bank Rate, the rate under clause (a) above shall change, as of the first of the month following any change, so as to remain equal to the Chase Bank Rate. The rate hereunder shall be calculated based on a 360-day year. CITBC shall be entitled to charge the Companies' Revolving Loan Account(s) at the rate provided for herein when due until all Obligations have been paid in full. Notwithstanding the foregoing, in the event that the Divestiture has not occurred within 60 days following the Closing Date and the Term Loan, and the Revolving Loans advanced to AII then outstanding, have not been repaid in full, then the rate of interest applicable to all Revolving Loans shall be the Chase Bank Rate plus three percent (3%) per annum until such time as the Divestiture has been consummated, and the Term Loan and Revolving Loans to AII have been repaid, at which time the interest rate applicable to the Revolving Loans shall revert to the rate otherwise applicable hereunder. (b) Notwithstanding any provision to the contrary contained in this Section 8, in the event that the sum of the outstanding balance of (i) Revolving Loans and (ii) Letters of Credit exceeds the lesser of (x) as to any Company the maximum amount thereof available under Sections 3 and 5 of this Financing Agreement or (y) for all Companies the Line of Credit: (A) as a result of Revolving Loans and/or Letters of Credit advanced by CITBC at the request of a Company (herein "Requested Overadvances"), for any one (1) or more days in any month hereafter or (B) for any other reason whatsoever (herein "Other Overadvances") and such Other Overadvances continuing for five (5) or more consecutive days in any month hereafter, the average net balance of all Revolving Loans owing by the Companies to CITBC for such month shall bear interest at the Overadvance Rate. Upon and after the occurrence of an event of Default and the giving of any required notice by CITBC in accordance with the provisions of Section 10, Paragraph 2 hereof, all Obligations shall bear interest at the Default Rate of Interest. 2. Interest on the Term Loan shall be payable monthly as of the end of each month on the unpaid balance or on payment in full prior to maturity in an amount equal to three percent (3.0%) plus the Chase Bank Rate per annum. In the event of any change in said Chase Bank Rate, the rate under this Paragraph 2 shall change, as of the first of the month following any change, so as to remain three percent (3.0%) above the Chase Bank Rate. The rate hereunder shall be calculated based on a 360 day year. CITBC shall be entitled 38 41 to charge the Companies' Revolving Loan Account(s) at the rate provided for herein when due until all Obligations have been paid in full. 3. INTENTIONALLY OMITTED. 4. INTENTIONALLY OMITTED. 5. The Companies may elect to use Libor as to any other outstanding Revolving Loans provided A) there is then no Default or Event of Default, B) the Companies have so advised CITBC of their election to use Libor and the Libor Period selected no later than three (3) Business Days preceding the first day of a Libor Period and C) the election and Libor shall be effective, provided, there is then no Default or Event of Default, on the fourth Business Day following said notice. The Libor elections must be for $1,000,000 or whole multiples thereof and there shall be no more than four (4) Libor Loans outstanding at one time. If no such election is timely made or can be made, or if the Libor rate can not be determined, then CITBC shall use the Chase Bank Rate to compute interest. In the event the Companies request any Libor election the Companies shall pay to CITBC a $500 processing fee upon the effective date of each such Libor election hereunder. In addition, the Companies shall pay to CITBC, upon the request of CITBC such amount or amounts as shall compensate CITBC for any loss, costs or expenses incurred by CITBC (as reasonably determined by CITBC) as a result of: (i) any payment or prepayment on a date other than the last day of a Libor Period for such Libor Loan, or (ii) any failure of the Companies to borrow a Libor Loan on the date for such borrowing specified in the relevant notice; such compensation to include, without limitation, an amount equal to any loss or expense suffered by CITBC during the period from the date of receipt of such payment or prepayment or the date of such failure to borrow to the last day of such Libor Period if the rate of interest obtained by CITBC upon the reemployment of an amount of funds equal to the amount of such payment, prepayment or failure to borrow is less than the rate of interest applicable to such Libor Loan for such Libor Period. The determination by CITBC of the amount of any such loss or expense, when set forth in a written notice to the Companies, containing CITBC calculations thereof in reasonable detail, shall be conclusive on the Companies, in the absence of manifest error. Calculation of all amounts payable to the CITBC under this paragraph with regard to Libor Loans shall be made as though CITBC had actually funded the Libor Loans through the purchase of deposits in the relevant market and currency, as the case may be, bearing interest at the rate applicable to such Libor Loans in an amount equal to the amount of the Libor Loans and having a maturity comparable to the relevant interest period provided, however, that CITBC may fund each of the Libor Loans in any manner the CITBC see fit and the foregoing assumption shall be used only for calculation of amounts payable under this paragraph. In addition, notwithstanding anything to the contrary contained herein, CITBC shall apply all proceeds of Collateral, including the Accounts, and all other amounts received by it from or on behalf of the Companies (i) initially to the Chase Bank Rate loans and (ii) subsequently to Libor 39 42 Loans; provided, however, x) upon the occurrence of an Event of Default or y) in the event the aggregate amount of outstanding Libor Rate Loans exceeds Availability or the applicable maximum levels set forth therefor, CITBC may apply all such amounts received by it to the payment of Obligations in such manner and in such order as CITBC may elect in its reasonable business judgment. In the event that any such amounts are applied to Revolving Loans which are Libor Loans, such application shall be treated as a prepayment of such loans and CITBC shall be entitled to indemnification hereunder. 6. In consideration of the Letter of Credit Guaranty of CITBC, the Companies shall jointly and severally pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal to one and one-half percent (1-1/2%) per annum, payable monthly, on the face amount of each Letter of Credit less the amount of any and all amounts previously drawn under the Letter of Credit. 7. Any charges, fees, commissions, costs and expenses charged to CITBC for the Companies' account by any Issuing Bank in connection with or arising out of Letters of Credit issued pursuant to this Financing Agreement or out of transactions relating thereto will be charged to the Companies' account in full when charged to or paid by CITBC and when made by any such Issuing Bank shall be conclusive on CITBC. 8. The Companies shall jointly and severally reimburse or pay CITBC, as the case may be, for: i) all Out-of-Pocket Expenses of CITBC and ii) any applicable Documentation Fee; provided that, after the Closing Date, such Out-of Pocket Expenses shall not exceed $20,000 per Fiscal Year excluding anticipated post-closing conditions and similar matters or extraordinary matters, or any items arising after an Event of Default. 9. Upon the last Business Day of each month, commencing with the last day of the month in which this Financing Agreement is executed the Companies shall jointly and severally pay CITBC the Unused Line Fee. 10. To induce CITBC to enter into this Financing Agreement and to extend to the Companies the Revolving Loan, Letters of Credit, and the Term Loan, the Companies shall jointly and severally pay to CITBC, a Loan Facility Fee in the amount of $500,000, fully earned and payable on the Closing Date; provided that if the Closing Date shall occur after December 31, 1999, such fee shall be reduced to $400,000. 11. Upon the date hereof and on each annual anniversary hereof the Companies shall jointly and severally pay to CITBC the Administrative Management Fee, which shall be fully earned and not refundable or rebatable when due. 12. The Companies shall jointly and severally pay CITBC's standard charges for, and the fees and expenses of, the CITBC personnel used by CITBC for reviewing the books 40 43 and records of the Companies and for verifying, testing, protecting, safeguarding, preserving or disposing of all or any part of the Collateral provided, however, that the foregoing (other than Out-of-Pocket Expenses) shall not be payable until the occurrence of an Event of Default if the Companies are paying an Administrative Management Fee. 13. Each of the Companies hereby authorizes CITBC to charge its Revolving Loan Account with CITBC with the amount of all payments due hereunder as such payments become due. Each of the Companies confirms that any charges which CITBC may so make to the Companies' account as herein provided will be made as an accommodation to the Companies and solely at CITBC's discretion. CITBC may in its sole and absolute discretion allocate any of the above fees and/or any other payments due under this Financing Agreement to the Companies' respective Revolving Loan Accounts in any proportion that CITBC may decide. SECTION 9. POWERS Each of the Companies hereby constitutes CITBC or any person or agent CITBC may designate as its attorney-in-fact, at the Companies' cost and expense, to exercise all of the following powers, which being coupled with an interest, shall be irrevocable until all of the Companies' Obligations to CITBC have been paid in full: (a) To receive, take, endorse, sign, assign and deliver, all in the name of CITBC or the Companies, any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (b) To receive, open and dispose of all mail addressed to the Companies and to notify postal authorities to change the address for delivery thereof to such address as CITBC may designate; (c) To request from customers indebted on Accounts at any time, in the name of CITBC or the Companies or that of CITBC's designee, information concerning the amounts owing on the Accounts; (d) To transmit to customers indebted on Accounts notice of CITBC's interest therein and to notify customers indebted on Accounts to make payment directly to CITBC for the Companies' account; and (e) To take or bring, in the name of CITBC or the Companies, all steps, actions, suits or proceedings deemed by CITBC necessary or desirable to enforce or effect collection of the Accounts. 41 44 Notwithstanding anything hereinabove contained to the contrary, the powers set forth in (b), (d) and (e) above may only be exercised after the occurrence of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction. In addition, the powers set forth in (c) above will only be exercised in the name of the Companies or a certified public accountant designated by CITBC prior to the occurrence of such Event of Default. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate this Financing Agreement immediately upon the occurrence of any of the following (herein "Events of Default"): a) cessation of the business of the Companies, or any one of them, or the calling of a meeting of the creditors of the Companies, or any one of them, for purposes of compromising their debts and obligations; b) the failure of the Companies, or any one of them, to generally meet debts as they mature; c) the commencement by or against the Companies, or any one of them, of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law, provided that in the event of any involuntary proceeding commenced against the Companies such proceeding is not dismissed or discharged within thirty (30) days after commencement thereof; d) breach by the Companies, or any one of them, of any warranty, representation or covenant contained herein (other than those referred to in sub-paragraph e below) or in any other written agreement between the Companies and CITBC, provided that such breach by the Companies of any of the warranties, representations or covenants referred in this clause d shall not be deemed to be an Event of Default unless and until such breach shall remain unremedied to CITBC's satisfaction for a period of ten (10) days from the date of such breach; e) breach by the Companies, or any one of them, of any warranty, representation or covenant of Section 3, Paragraphs 3 (other than the third sentence of paragraph 3) and 4; Section 6, Paragraphs 3 and 4 (other than the first sentence of paragraph 4); Section 7, Paragraphs 1,5,6, and 9 through 11; f) failure of the Companies to pay any of the Obligations within five (5) Business Days of the due date thereof, provided that nothing contained herein shall prohibit CITBC from charging such amounts to the Companies' Revolving Loan Accounts on the due date thereof; g) INTENTIONALLY OMITTED; 42 45 h) the Companies, or any one of them, shall i) engage in any "prohibited transaction" as defined in ERISA, ii) have any "accumulated funding deficiency" as defined in ERISA, iii) have any Reportable Event as defined in ERISA, iv) terminate any Plan, as defined in ERISA or v) be engaged in any proceeding in which the Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee or administrator of any Plan, as defined in ERISA, and with respect to this sub-paragraph h such event or condition x) remains uncured for a period of thirty (30) days from date of occurrence and y) could, in the reasonable opinion of CITBC, subject the Companies to any tax, penalty or other liability material to the business, operations or financial condition of the Companies; i) except as otherwise permitted hereunder, without the prior written consent of CITBC, the Companies or any holder of any Subordinated Debt shall x) amend or modify the Subordinated Debt, or y) make or accept, as applicable, any payment on account of the Subordinated Debt except as permitted in the Subordination Agreement or, with respect to the Subordinated Debt outstanding under the 1997 Indenture, except as permitted thereunder (but in no event any prepayments under the 1997 Indenture), or z) breach, rescind or revoke any provision of the Subordination Agreement; or, with respect to the LLCP Debt, the Companies shall make any prepayment (other than prepayment of the LLCP Term Loan A Debt upon consummation of the Divestiture or other sale of the stock or assets of a subsidiary of Simula if the Term Loan shall have been repaid in full) thereof; j) the occurrence of any default or event of default (after giving effect to any applicable grace or cure periods) under any instrument or agreement evidencing (x) Subordinated Debt or (y) any other Indebtedness (including the LLCP Debt) of the Companies having a principal amount in excess of $250,000; k) any breach by LLCP in any material respect of any of its covenants under the Intercreditor Agreement; l) there shall occur any Change of Control (as defined in the Securities Purchase Agreement, dated on or about the date hereof, respecting the LLCP Debt). 2. Upon the occurrence of a Default and/or an Event of Default, at the option of CITBC, all loans, advances and extensions of credit provided for in Sections 3, 4 and 5 of this Financing Agreement shall be thereafter in CITBC's sole discretion and the obligation of CITBC to make Revolving Loans, and/or open Letters of Credit shall cease unless such Default or Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction, and at the option of CITBC upon the occurrence of an Event of Default: i) all Obligations shall become immediately due and payable; ii) CITBC may charge the Companies the Default Rate of Interest on all then outstanding or thereafter incurred Obligations in lieu of the interest provided for in Section 8 of this Financing Agreement provided that respect 43 46 to this clause "ii)" a) CITBC has given the Companies written notice of the Event of Default, provided, however, that no notice is required if the Event of Default is the Event listed in paragraph 1(c) of this Section 10 and b) the Companies have failed to cure the Event of Default within ten (10) days after x) CITBC deposited such notice in the United States mail or y) the occurrence of the Event of Default listed in paragraph 1(c) of this Section 10; and iii) CITBC may immediately terminate this Financing Agreement upon notice to the Companies, provided, however, that no notice of termination is required if the Event of Default is the Event listed in paragraph 1(c) of this Section 10. The exercise of any option is not exclusive of any other option which may be exercised at any time by CITBC. 3. Immediately upon the occurrence of any Event of Default, CITBC may to the extent permitted by law: (a) remove from any premises where same may be located any and all documents, instruments, files and records, and any receptacles or cabinets containing same, relating to the Accounts, or CITBC may use, at the Companies' expense, such of the Companies' personnel, supplies or space at the Companies' places of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (b) bring suit, in the name of the Companies or CITBC, and generally shall have all other rights respecting said Accounts, including without limitation the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Companies or CITBC; (c) sell, assign and deliver the Collateral and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at CITBC's sole option and discretion, and CITBC may bid or become a purchaser at any such sale, free from any right of redemption, which right is hereby expressly waived by the Companies; (d) foreclose the security interests created herein by any available judicial procedure, or to take possession of any or all of the Inventory, Equipment and/or Other Collateral without judicial process, and to enter any premises where any Inventory, Equipment and/or Other Collateral may be located for the purpose of taking possession of or removing the same and (e) exercise any other rights and remedies provided in law, in equity, by contract or otherwise. CITBC shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral whether in its then condition or after further preparation or processing, in the name of the Companies or CITBC, or in the name of such other party as CITBC may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as CITBC in its sole discretion may deem advisable, and CITBC shall have the right to purchase at any such sale. If any Inventory and Equipment shall require rebuilding, repairing, maintenance or preparation, CITBC shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the Inventory and Equipment in such saleable form as CITBC shall deem appropriate. The Companies agree, at the request of CITBC, to assemble the Inventory and Equipment and to make it available to CITBC at premises of the Companies or elsewhere and to make 44 47 available to CITBC the premises and facilities of the Companies for the purpose of CITBC's taking possession of, removing or putting the Inventory and Equipment in saleable form. However, if notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notification and full compliance with the law. The net cash proceeds resulting from CITBC's exercise of any of the foregoing rights, (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by CITBC to the payment of the Companies' Obligations, whether due or to become due, in such order as CITBC may elect, and the Companies shall remain liable to CITBC for any deficiencies, and CITBC in turn agrees to remit to the Companies or their successors or assigns, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. The mortgage(s), deed(s) of trust and/or assignment(s) on the Real Estate shall govern the rights and remedies of CITBC thereto. SECTION 11. TERMINATION Except as otherwise permitted herein, the Companies or CITBC may terminate this Financing Agreement and the Line of Credit only as of the initial or any subsequent Anniversary Date and then only by giving the other at least sixty (60) days prior written notice of termination. Notwithstanding the foregoing CITBC may terminate the Financing Agreement immediately upon the occurrence of an Event of Default, provided, however, that if the Event of Default is an event listed in paragraph 1(c) of Section 10 of this Financing Agreement, CITBC may regard the Financing Agreement as terminated and notice to that effect is not required. This Financing Agreement, unless terminated as herein provided, shall automatically continue from Anniversary Date to Anniversary Date. Notwithstanding the foregoing, the Companies may terminate this Financing Agreement and the Line of Credit prior to any applicable Anniversary Date upon sixty (60) days' prior written notice to CITBC, provided that the Companies pay to CITBC immediately on demand, an Early Termination Fee, if applicable. Termination by any of the Companies shall constitute termination with respect to all Companies. All Obligations shall become due and payable as of any termination hereunder or under Section 10 hereof and, pending a final accounting, CITBC may withhold any balances in the Companies' accounts (unless supplied with an indemnity satisfactory to CITBC) to cover all of the Companies' Obligations, whether absolute or contingent. All of CITBC's rights, liens and security interests shall continue after any termination until all Obligations have been paid and satisfied in full. SECTION 12. MISCELLANEOUS 1. Each of the Companies hereby waives diligence, demand, presentment and protest and any notices thereof as well as notice of nonpayment. No delay or omission 45 48 of CITBC or the Companies to exercise any right or remedy hereunder, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial exercise by CITBC of any right or remedy precludes any other or further exercise thereof, or precludes any other right or remedy. 2. This Financing Agreement and the documents executed and delivered in connection therewith constitute the entire agreement between the Companies and CITBC; supersede any prior agreements; can be changed only by a writing signed by both the Companies and CITBC; and shall bind and benefit the Companies and CITBC and their respective successors and assigns. 3. In no event shall the Companies, upon demand by CITBC for payment of any indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise, be obligated to pay interest and fees in excess of the amount permitted by law. Regardless of any provision herein or in any agreement made in connection herewith, CITBC shall never be entitled to receive, charge or apply, as interest on any indebtedness relating hereto, any amount in excess of the maximum amount of interest permissible under applicable law. If CITBC ever receives, collects or applies any such excess, it shall be deemed a partial repayment of principal and treated as such; and if principal is paid in full, any remaining excess shall be refunded to the Companies. This paragraph shall control every other provision hereof and of any other agreement made in connection herewith. 4. If any provision hereof or of any other agreement made in connection herewith is held to be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions of the applicable agreement shall remain in full force and effect and shall not be affected by such provision's severance. Furthermore, in lieu of any such provision, there shall be added automatically as a part of the applicable agreement a legal and enforceable provision as similar in terms to the severed provision as may be possible. 5. THE COMPANIES AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH OF THE COMPANIES HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. 6. Except as otherwise herein provided, any notice or other communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered when hand delivered or sent by telegram or telex, or three days after deposit in the United State mails, with proper first class postage prepaid and addressed to the party to be notified as follows: 46 49 (A) if to CITBC, at: The CIT Group/Business Credit, Inc. 300 South Grand Avenue, 3rd Floor Los Angeles, California 90071 Attn: Vice President and Regional Credit Manager Fax No.: (213) 613-2501 (B) if to the Companies at: Simula, Inc. 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 Attn: Mr. James Dodd, Chief Financial Officer Fax No.: (602) 631-9005 or to such other address as any party may designate for itself by like notice. 7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed and delivered by their proper and duly authorized officers as of the date set forth above. This Financing Agreement shall take effect as of the date set forth above after being accepted below by an officer of CITBC after which, CITBC shall forward to the Companies a fully executed original for their files. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC. By /s/ Thomas Heyes Senior Vice President 47 50 Read and Agreed to: SIMULA, INC. By /s/ James C. Dodd Title: Executive Vice President & CFO AIRLINE INTERIORS, INC. By /s/ James C. Dodd Title: Treasurer ARTCRAFT INDUSTRIES CORP. By /s/ James C. Dodd Title: Treasurer SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.) By /s/ James C. Dodd Title: Treasurer INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. By /s/ James C. Dodd Title: Treasurer 48 51 SIMULA AUTOMOTIVE SAFETY DEVICES, INC. By /s/ James C. Dodd Title: Treasurer SIMULA COMPOSITES CORPORATION By /s/ James C. Dodd Title: Treasurer SIMULA POLYMER SYSTEMS, INC. By /s/ James C. Dodd Title: Treasurer SIMULA SAFETY SYSTEMS, INC. By /s/ James C. Dodd Title: Treasurer SIMULA TECHNOLOGIES, INC. By /s/ James C. Dodd Title: Treasurer 49 52 SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED By /s/ James C. Dodd Title: Treasurer CCEC CAPITAL CORP. By /s/ James C. Dodd Title: Treasurer 50 53 Exhibit 10.41b STOCK PLEDGE AGREEMENT To: THE CIT GROUP/BUSINESS CREDIT, INC. Address: 300 South Grand Avenue, 3rd Floor Los Angeles, California 90071 December 30, 1999 Gentlemen: Reference is made to a certain Financing Agreement dated of even date herewith, as amended (herein called the "Financing Agreement") between you and the undersigned (collectively, "Pledgor"), together with the subsidiaries and affiliates of the undersigned which are parties thereto (herein collectively called the "Company"). Capitalized terms used herein and defined in the Financing Agreement shall have the same meanings as set forth therein unless otherwise specifically defined herein. As security for: (a) the full and indefeasible payment and performance when due of all now existing and future Obligations of the Company to you, whether absolute or contingent, however acquired by you, and whether arising under the Financing Agreement as now written or as amended or supplemented or augmented hereafter, or by virtue of any guaranty now or hereafter executed by Pledgor in your favor, in law or otherwise; (b) any liability or indebtedness you may incur because of any guaranty you may issue at the request of the Company, including, without limitation, any Letter of Credit Guaranty; (c) the amount of all expenses (including reasonable attorneys' fees) incurred by you in collecting or attempting to collect any of the Company's obligations to you whether from the Company or any other obligor or in realizing upon collateral; and (d) any interest from the due date at the Default Rate of Interest specified in the Financing Agreement on all amounts payable to you hereunder (all of which are herein called the "Secured Obligations"), Pledgor hereby pledges, assigns, transfers, delivers and sets over to you all of its right, title and interest in and to the securities listed on the attached schedule, issued as indicated on said schedule (the "Securities"). This pledge includes all right, title and interest in and to and a continuing lien upon and security interest in, all of said Securities together with any and all rights, coupons, warrants or rights to subscribe, options, dividends, liquidating dividends, splits, dividends paid in stock, dividends paid in Securities, new or reclassified Securities, or any other property which Pledgor is or may hereafter become entitled to receive on account of such Securities, any and all increments, substitutions, - 1 - 54 additions or replacements thereof, and any and all proceeds thereof (all collectively hereinafter referred to as the "Pledged Collateral"). This Stock Pledge Agreement is executed as an inducement to you to make loans or advances to the Company or issue guaranties at the request of the Company, or otherwise to extend credit or financial accommodations to the Company or to enter into or continue a financing arrangement with the Company, and is executed in consideration of your doing or having done any of the foregoing. Pledgor agrees that any of the foregoing shall be deemed to have been done or extended by you in consideration of and in reliance upon the execution of this Stock Pledge Agreement. Pledgor shall be in default under this Pledge Agreement upon the occurrence of any Event of Default under the Financing Agreement (herein any such default shall be referred to as an "Event of Default"). In the event of the happening of any such Event of Default, then on ten (10) days prior notice to Pledgor, without the curing of such default within such time, you may, without demand of performance, advertisement or notice of intention to sell, or of the time or place of sale, and without notice to redeem, or other notice or demand whatsoever to or upon Pledgor (all and each of which demands, advertisements and/or notices are hereby expressly waived), forthwith or at any time or times thereafter, transfer to and/or register in your name, or the name of your nominee, any or all of the Pledged Collateral and/or collect, receive, appropriate and realize upon said Pledged Collateral. In addition, and also without any of the aforesaid demands, advertisements, and/or notices, upon the occurrence of any Event of Default as defined herein, you may sell, assign, transfer and deliver the whole or any part of the Pledged Collateral then held by you under this Stock Pledge Agreement or subject to this Stock Pledge Agreement in one or more parcels, at public or private sale or sales, at any Exchange Broker's Board, at your office or elsewhere, on such terms and conditions, and at such prices as you may deem advisable, for cash, upon credit, or for future delivery, with the right on your part to become the purchaser thereof at any such sale or sales, free and clear of any right to equity of redemption (which right or equity is hereby expressly waived and released). Any notice of sale, disposition, or other intended action by you required by applicable law and sent to Pledgor at least ten (10) days prior to such action shall constitute reasonable notice to Pledgor. Prior to exercising your rights contained herein you may in your discretion forward the various coupons coming due on any bonds covered hereby directly to Pledgor for collection. Net proceeds of any such disposition as aforesaid, after deduction all costs, including reasonable attorney's fees and expenses of every kind incurred therein, -2- 55 shall be applied to the payment in whole or in part, in such order as you may elect, of any of the Secured Obligations, whether then due or not due. You agree to pay over and return any remaining balance to Pledgor or to any person entitled thereto, upon proper demand being made therefor, and if there be any deficiency, Pledgor shall continue to be fully liable for same. Further, you are hereby expressly granted the right and irrevocable proxy, in the event of the happening of any Event of Default (as defined herein), and on ten (10) days prior notice to Pledgor, without the curing of such Event of Default within such time, to transfer to yourself or to your nominee any or all of the Pledged Collateral or to register same in your name on the books of Pledgor or entity issuing same; to receive cash dividends, coupons and income thereon and to hold the same as additional collateral security hereunder, or to apply it against the Secured Obligations and to exercise any voting rights with respect to said Collateral for any purposes as you in your discretion deem advisable, and to otherwise exercise as to such Pledged Collateral, all rights, powers and remedies as the owner thereof. Pledgor hereby represents and warrants that the Pledged Collateral is owned by Pledgor absolutely, and is free and clear of all liens and encumbrances except for the pledge in your favor and except for Permitted Encumbrances (as defined in the Financing Agreement); that there are no restrictions upon the pledge or transfer of any of the Pledged Collateral; that Pledgor has full right to pledge and transfer the same in accordance with the terms and conditions of this Stock Pledge Agreement, free of all encumbrances (except said Permitted Encumbrances) and without the consent of any other person, firm, entity or corporation and without the need to notify the issuing company and/or obtain their consent to the pledge; and that said Pledged Collateral is not subject to any assessment. Pledgor agrees to defend its title to the Pledged Collateral at its own cost and expense, and to pay, satisfy and discharge and any all assessments, liens or charges now or thereafter placed upon the Pledged Collateral. In the event that it becomes necessary to comply with any Federal or State law or regulation or to make or file any registration thereunder in order for you to exercise any of your rights hereunder, Pledgor expressly agrees to do or will cause to be done all acts and prepare and execute all documents necessary to affect such compliance or registration, and to bear all reasonable costs in connection therewith. Pledgor agrees to indemnify and to hold you harmless from and against any claim or liability; and to hold you harmless from and against any claim or liability caused by (i) any untrue statement of material fact, or omission to state a material fact (as required in any registration or prospectus) or (ii) a failure to register or comply with any such law or regulation. -3- 56 Pledgor recognizes that you may be unable to effect a public sale of any or all of the Collateral, by reason of certain prohibitions contained in the Securities Act of 1933 and applicable state securities law or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obligated to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to you than if such sale were a public sale and agrees that such circumstances shall not, in and of themselves, result in a determination that such sale was not made in a commercially reasonable manner. You shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the issuer to register such securities for public sale under the Securities Act of 1933, or under applicable state securities laws, even if the issuer agrees to do so. Pledgor affirms and certifies that the Secured Obligations were not, and will not be, incurred for the purpose of providing or obtaining any credit for purchasing or trading in registered equity securities or other marketable securities. Pledgor hereby agrees at your request to execute all necessary stock powers in blank, to have the signatures on said powers guaranteed, to execute a letter or other form confirming that the Pledged Collateral is not being pledged to you for the purpose of providing or obtaining any credit for purchasing or trading in registered equity securities or other marketable securities, and to execute any further documents or papers whatsoever in order to carry out the intent and purpose of this Stock Pledge Agreement. The pledge provided for herein shall be in addition to, and shall not be deemed to affect, modify or limit any other rights, collateral, agreements or security which you may now or hereafter hold whether granted or given to you by Pledgor or by any other person, firm or corporation. It is understood and agreed that the rights and remedies herein enumerated are not intended to be exhaustive but are in addition to any other rights or remedies at law or in equity. You shall have the absolute right in your sole discretion to determine the order in which your rights and remedies are to be exercised, and your exercise of any right or remedy shall not preclude the exercise of any other rights or remedies or be deemed to be a waiver thereof. No act of forbearance, or agreement to forebear the enforcement of, or extension of the date of maturity of, any Secured Obligation, shall in any way constitute a release of, or a waiver or relinquishment of any of your rights or remedies. -4- 57 This Stock Pledge Agreement is to be governed by the laws of the State of California shall be binding on the heirs, administrators, executors, successors and assigns of Pledgor, and shall inure to the benefit of you and your successors and assigns. Very truly yours, SIMULA, INC. By /s/ James C. Dodd ---------------------- Title: Executive Vice President and CFO -------------------------------- AIRLINE INTERIORS, INC. By /s/ James C. Dodd ---------------------- Title: Treasurer -------------------------------- ARTCRAFT INDUSTRIES CORP. By /s/ James C. Dodd ---------------------- Title: Treasurer -------------------------------- SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.) By /s/ James C. Dodd ---------------------- Title: Treasurer -------------------------------- -5- 58 INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. By /s/ James C. Dodd ----------------------- Title: Treasurer -------------------------------- SIMULA AUTOMOTIVE SAFETY DEVICES, INC. By /s/ James C. Dodd ----------------------- Title: Treasurer -------------------------------- SIMULA COMPOSITES CORPORATION By /s/ James C. Dodd ----------------------- Title: Treasurer -------------------------------- SIMULA POLYMER SYSTEMS, INC. By /s/ James C. Dodd ----------------------- Title: Treasurer -------------------------------- SIMULA SAFETY SYSTEMS, INC. ----------------------- By /s/ James C. Dodd Title: Treasurer -------------------------------- -6- 59 SIMULA TECHNOLOGIES, INC. By /s/ James C. Dodd ----------------------- Title: Treasurer ------------------- SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED By /s/ James C. Dodd ----------------------- Title: Treasurer ------------------- CCEC CAPITAL CORP. By /s/ James C. Dodd ----------------------- Title: Treasurer ------------------- -7- 60 SCHEDULE TO STOCK PLEDGE AGREEMENT BETWEEN THE CIT GROUP/BUSINESS CREDIT, INC. AND SIMULA, INC. AND CERTAIN SUBSIDIARIES (COLLECTIVELY, THE "PLEDGOR")
Issuer Owner Certificate# # of Shares ------ ----- ------------ ----------- 1. Simula Safety Simula, Inc. 1 5000 Systems, Inc. 2. Simula Transportation Simula, Inc. 1 5000 Equipment Corporation 3. Simula Automotive Simula, Inc. 1 5000 Safety Devices, Inc. 4. Simula Simula, Inc. 1 5000 Technologies, Inc. 5. Simula Polymer Simula, Inc. 1 5000 Systems, Inc. 6. Airline Interiors, Inc. Simula Transportation 1 5000 Equipment Corporation 7. Artcraft Industries Corp. Simula Transportation 1 5000 Equipment Corporation 8. Simula Composites Simula Transportation 1 1000 Corporation Equipment Corporation 9. Simula Automotive Simula Automotive 2 1 Safety Devices, Limited Safety Devices, Inc. 10. International Center Simula Technologies, Inc. 1 5000 For Safety Education, Inc. 11. CCEC Capital Corp. Simula Transportation 1 5000 Equipment Corporation
-8- 61 Exhibit 10.41c SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT, made and entered into the 30th day of December, 1999, by and between STANLEY DESJARDINS ("Subordinating Creditor") with an address at 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, and THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT") with a place of business at 300 South Grand Avenue, 3rd Floor, Los Angeles, California 90071. WITNESSETH: WHEREAS, Simula, Inc. (the "Company") has executed and delivered to Subordinating Creditor its promissory note, dated, October 17, 1999 in the principal amount of $1,000,000 (the "Subordinated Note"); WHEREAS, the Company desires to borrow certain sums from CIT pursuant to a certain Financing Agreement ("Financing Agreement") and a certain Promissory Note in the amount of $5,000,000 (the "CIT Note") executed in conjunction therewith to evidence the Term Loan extended by CIT to the Company Simula, Inc. thereunder; WHEREAS, the extension of credit by CIT to the Company will benefit the Subordinating Creditor; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Subordinating Creditor hereby agrees with CIT as follows: 1. SUBORDINATION. The Subordinating Creditor hereby subordinates and defers the payment (including without limitation in any Insolvency Proceeding) of any and all amounts which may be now or hereafter owing by the Company to the Subordinating Creditor pursuant to the Subordinated Note and/or any promissory notes now or hereafter executed and delivered by the Company to the Subordinating Creditor in payment of or as evidence of amounts now or hereafter owing by the Company to the Subordinating Creditor arising pursuant to or in connection with said Subordinated Note (the "Subordinated Debt") to the prior payment and satisfaction in full of any and all Senior Debt which may be now or hereafter owing to CIT by the Company. "Senior Debt," as used herein, shall mean all Obligations (as defined in the Financing Agreement), including, without limitation, any and all now existing and future indebtedness, obligations or liabilities of the Company to CIT, whether direct or indirect, absolute or contingent, secured or unsecured, arising under the Financing Agreement or the CIT Note or any guaranty executed by the Company in favor of CIT, as now written or as amended or supplemented hereafter, or by operation of law or otherwise, including any and all expenses (including reasonable attorneys' fees) incurred in connection therewith and any interest thereon, including, without limitation, any post petition interest accruing on such Senior Debt after the Company becomes subject to an Insolvency Proceeding (whether or not such interest is enforceable against the Company or recoverable against the Company or its bankruptcy estate). -1- 62 Senior Debt shall also include all indebtedness, obligations and liabilities of the Company (i) arising in connection with any advances made to the Company as a debtor-in-possession, or a trustee for the Company under any Insolvency Proceeding and (ii) to repay any amount previously paid by the Company pursuant to the Financing Agreement which amounts have been returned to the Company or to a trustee pursuant to sections 547 or 548 of the Bankruptcy Code. "Insolvency Proceeding" shall mean (i) any insolvency or bankruptcy case or proceeding or any receivership, liquidation, reorganization, readjustment, composition or other similar case or proceeding relating to the Company or its assets, (ii) any liquidation, dissolution, reorganization or winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings or (ii) any assignment for the benefit or creditors or any other marshalling of the Company's assets. 2. REPRESENTATIONS AND WARRANTIES. The Subordinating Creditor hereby warrants and represents: 2.1 That the Company owes to the Subordinating Creditor, as of the date hereof, the Subordinated Debt; that the Subordinated Debt is not and will not be subject to any defense, offset or counterclaim; that the Subordinating Creditor is the exclusive owner of the Subordinated Debt; that there are, and will be, no guarantees or collateral or security for said Subordinated Debt; and that neither the Subordinated Debt nor any collateral or guarantees (if any) therefor is now, nor will be subject to any lien, security interest, guarantees, subordination or assignment except the subordination in favor of CIT. 2.2 That until such time as this Subordination Agreement is terminated as herein below provided, the Subordinating Creditor will not, directly or indirectly, demand or receive payment of; exchange, forgive, or modify; request or obtain collateral or security or guarantees for; effect a subordination or transfer to others of; grant any security interest in or lien on; or assert, or participate in, or bring any sort of action, suit or proceeding (including without limitation bankruptcy or insolvency proceedings) either at law or in equity for the enforcement, collection or realization on: the whole or any part of, the Subordinated Debt (herein "Commence Legal Action"). 3. INDUCEMENT. This Subordination Agreement is executed as an inducement to CIT to make loans or advances to the Company or otherwise to extend credit or financial accommodations to the Company, and to enter into and continue a financing arrangement with the Company and is executed in consideration of CIT's doing or having done any of the foregoing. The Subordinating Creditor agrees that any of the foregoing shall be done or extended by CIT in its sole discretion and shall be deemed to have been done or extended by CIT in consideration of and in reliance upon the execution of this Subordination Agreement, but that nothing herein shall obligate CIT to do any of the foregoing. 4. TERMINATION. This Subordination Agreement may be terminated only upon (i) payment and satisfaction in full of all Senior Debt and termination of the Financing Agreement and CIT's obligation to make loans, advances and/or extensions of credit thereunder, or (ii) as of -2- 63 an Anniversary Date, as defined in the Financing Agreement, and then only upon actual receipt by an officer of CIT of at least one hundred and twenty (120) days prior written notice of termination sent by registered or certified mail; provided, however, that in the event of termination of this Subordination Agreement, the Subordinating Creditor, shall remain bound hereunder, and this Subordination Agreement shall continue in full force and effect with respect to any and all Senior Debt created or arising prior to the effective date of such termination and with respect to any and all extensions, renewals or modifications of said pre-existing Senior Debt. This is a continuing agreement and written notice as above provided shall be the only means of termination, notwithstanding the fact that for certain periods of time there may be no Senior Debt owing to CIT by the Company. Subordinating Creditor acknowledges and agrees that any such termination shall constitute an Event of Default under the Financing Agreement. 5. RIGHTS IN INSOLVENCY PROCEEDINGS. The Subordinating Creditor irrevocably authorizes and empowers CIT in any Insolvency Proceeding involving or relating to the Subordinated Debt to file proof of its claim in behalf of the Subordinating Creditor with respect to the Subordinated Debt if the Subordinating Creditor fails to file proof of its claims prior to 30 days before the expiration of the time period during which such claims must be submitted, to accept and receive any payment or distribution which may be payable or deliverable at any time upon or in respect of the Subordinated Debt in an amount not in excess of the Senior Debt then outstanding and to take such other action as may be reasonably necessary to effectuate the foregoing. The Subordinating Creditor shall provide to CIT all information and documents necessary to present claims or seek enforcement as aforesaid. The Subordinating Creditor agrees that while it shall retain the right to vote its claims and otherwise act in any such Insolvency Proceeding relative to the Company (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition, or extension), the Subordinating Creditor shall not take any action or vote in any way so as to contest (i) the validity or the enforceability of the Financing Agreement, the CIT Note, or the liens and security interests to the extent granted to CIT with respect to the Senior Debt, (ii) the rights and duties of CIT established in the Financing Agreement or any security documents with respect to such liens and security interests, or (iii) the validity or enforceability of this Subordination Agreement or any agreement or instrument to the extent evidencing or relating to the Senior Debt. CIT agrees that while it shall retain the right to vote its Senior Debt and otherwise act in any such reorganization proceeding relative to the Company (including, without limitation, the right to vote or accept or reject any plan of partial or complete liquidation, reorganization arrangement, composition or extension), CIT shall not take any action or vote in any way so as to contest the enforceability of this Subordination Agreement, the Subordinated Note or any other agreement or instrument to the extent evidencing or relating to Subordinated Debt. 6. NO LIABILITY; OVERPAYMENT. CIT shall in no event be liable for any failure to prove the Subordinated Debt; for failure to exercise any rights with respect thereto; or for failure to collect any sums payable thereon or for failure to take any affirmative action in connection therewith. If any dividends or payments received by CIT on the Subordinated Debt, when added to the dividends received directly by CIT on the Senior Debt, shall exceed the total Senior Debt, CIT agrees to pay the excess to the Subordinating Creditor. -3- 64 7. ARRANGEMENTS WITH THE COMPANY. It is agreed that CIT may enter into any agreement or arrangements with respect to the Financing Agreement and/or the CIT Note, and any amendments, thereto, with the Company as CIT may deem proper; extend the time for payment of and/or renew any or all Senior Debt; surrender any security, collateral or guarantees underlying all or any of such Senior Debt, and make any settlements and compromises thereof; all without notice to or consent from the Subordinating Creditor and without in any way impairing or affecting this Subordination Agreement thereby. 8. PAYMENTS TO THE SUBORDINATING CREDITOR. (a) Subject to the provisions of subparagraph (b) hereof, should any payment with respect to the Subordinated Debt be received by the Subordinating Creditor in any form and from any source whatsoever (including, without limitation, any payment or distribution of collateral security (if any ) or the proceeds of any such collateral security) prior to the satisfaction in full of all of the Senior Debt, the Subordinating Creditor shall immediately deliver to CIT any monies, securities or other property received by it, or its equivalent in cash, with proper endorsements or assignments, if necessary; and pending such delivery the Subordinating Creditor shall hold such monies, securities or other property as trustee for the account of CIT. (b) Notwithstanding anything to the contrary stated herein, the Company may make payments of (i) interest when due, strictly in accordance with the terms and provisions of the Subordinated Note as in effect on the date hereof, and (ii) after full and final payment of the CIT Note, principal installments strictly in accordance with the terms and provisions of the Subordinated Note as in effect on the date hereof, all without prepayment or acceleration of the Subordinated Debt, and the Subordinating Creditor may demand, receive and retain said payments unless CIT has notified the Subordinating Creditor in writing that an Event of Default has occurred under the Financing Agreement (a "Default Notice"). Upon receipt of a Default Notice, and at all times thereafter until such Event of Default shall have been cured or waived and CIT shall have provided written notice thereof to the Subordinating Creditor, (i) the Subordinating Creditor may not take, demand, receive or accelerate any payment of principal or interest with respect to the Subordinated Debt and the Company shall not give, make or permit any such payment and (ii) the Subordinating Creditor shall not Commence Legal Action. However, notwithstanding the foregoing, should any Insolvency Proceeding occur at any time, the Subordinated Debt shall be subordinated to the prior payment of all Senior Debt in accordance with paragraph 1 hereof and the aforesaid provisions of subparagraph (a) of this paragraph. 9. ACCELERATION RIGHTS AND REMEDIES. The Subordinating Creditor shall have no right to accelerate the Subordinated Debt or Commence Legal Action to enforce collection of all, or any part of, the Subordinated Debt, except that the Subordinating Creditor may accelerate and Commence Legal Action in the event that the Company commences or has commenced against it (other than by the Subordinating Creditor) an Insolvency Proceeding, provided that any such involuntary Insolvency Proceeding which is commenced against the Company is not dismissed or discharged within 60 days after commencement thereof; provided, however that any amount received by the Subordinating Creditor as a result of any such acceleration, prior to payment in -4- 65 full of the Senior Debt, shall be held in trust and paid to CIT in accordance with the provisions of this Subordination Agreement. 10. ACTION AGAINST. If the Subordinating Creditor in violation of this Subordination Agreement shall assert or bring any action, suit or proceeding against the Company, the Company may interpose as a defense or dilatory plea the making of this Subordination Agreement, and CIT is hereby irrevocably authorized to intervene and to interpose such defense or plea in its name or in Company's name. If the Subordinating Creditor shall attempt to enforce, collect or realize upon any Subordinated Debt or, any collateral, security or guarantees (if any), securing the Subordinated Debt in violation of this Subordination Agreement, the Company may, by virtue of this Subordination Agreement, restrain any such enforcement, collection or realization, or upon failure to do so, CIT may restrain any such enforcement, collection or realization, either in its own name or in the name of the Company. 11. ENDORSEMENT OF NOTE; OTHER DOCUMENTS. The Subordinating Creditor agrees to mark the Subordinated Note evidencing the Subordinated Debt with a notation in substantially the following form: "This Note is subject to the terms and provisions of Subordination Agreement executed by the Payee in favor of The CIT Group/Business Credit, Inc.", and to deliver such Subordinated Note to CIT. 12. MODIFICATIONS TO THE SUBORDINATED NOTE. Without obtaining the prior written consent of CIT, the Subordinated Note shall not be amended for (i) any increase in the rate of interest charged thereunder (ii) any increase in the principal amount of the Subordinated Note or any installment due thereunder, (iii) any change of the maturity date of any payment for principal or interest which would have the effect of accelerating payment thereof, (iv) amendment of the form or method of payment, (v) the granting or obtaining of any collateral security or obtaining any lien in any collateral, (vi) providing for any additional financial covenants or events of default or making more restrictive any existing covenants or events of default applicable to the Company, or (vii) any other amendment which would have a material adverse effect on the operations of the Company, CIT's security interest in the Collateral or CIT's Senior Debt. 13. NO IMPAIRMENT OF COMPANY'S OBLIGATION. Subject to all of CIT's rights as expressly provided in this Subordination Agreement, nothing contained in this Subordination Agreement shall impair, as between the Company and the Subordinating Creditor, the obligation of the Company, which is unconditional and absolute, to pay the Subordinated Debt to the Subordinating Creditor as and when all or any portion thereof shall become due and payable in accordance with its terms or prevent the Subordinating Creditor, upon any default under the Subordinated Debt, from exercising all rights, powers and remedies otherwise provided therein or by applicable law. 14. SUBROGATION. Until such time as all Senior Debt is paid in full and this Subordination Agreement is terminated as herein provided the Subordinating Creditor shall not assert or be entitled to any subrogation rights. Subject to the prior sentence, if any payment or distribution to -5- 66 which the Subordinating Creditor would otherwise have been entitled (but for the provisions of this Subordination Agreement) shall have been turned over to CIT or otherwise applied to the payment of the Senior Debt pursuant to the provisions of this Subordination Agreement, then the Subordinating Creditor shall be entitled to receive from CIT any payments or distributions received by CIT in excess of the amount sufficient to pay all Senior Debt in full, and upon such payment in full of the Senior Debt shall be subrogated (without any representation by, or any recourse whatsoever to CIT) to all rights of CIT to receive all further payments or distributions applicable to the Senior Debt until the Subordinated Debt shall have been paid in full. For purposes of the Subordinating Creditor's subrogation rights hereunder, payments to CIT with respect to the Senior Debt which the Subordinating Creditor would have been entitled to receive with respect to the Subordinated Debt but for the provisions of this Subordination Agreement shall not, as between the Company, its creditors (other than CIT) and the Subordinating Creditor, be deemed payments with respect to the Senior Debt. CIT makes absolutely no representation or warranty whatsoever in connection with such rights or Senior Debt, including without limitation any representation or warranty as to the enforceability of the Financing Agreement, the Senior Debt, or any lien upon Collateral therefor, or the collectability of said Senior Debt. 15. ENTIRE AGREEMENT. This Subordination Agreement embodies the whole agreement of the parties and may not be modified except in writing. CIT's failure to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other rights at any other time and from time to time thereafter, and such rights shall be considered as cumulative rather than alternative. No knowledge of any breach or other non-observance by the Subordinating Creditor of the terms and provisions of this Subordination Agreement shall constitute a waiver thereof, nor a waiver of any obligations to be performed by the Subordinating Creditor hereunder. 16. WAIVER OF NOTICE. The Subordinating Creditor hereby waives any and all demands, presentments or notices (other than notices specifically provided for in this Subordination Agreement) to which it might otherwise be entitled (including, without limitation, any and all notice of the creation or accrual of any Senior Debt; of any extension, modification, or renewal of any of said Senior Debt, and of CIT's reliance on this Subordination Agreement). 17. NOTICES All notices and other communications hereunder shall be in writing or by telex, telegram or telecopy, and shall be deemed to have been duly made when delivered in person or sent by telex, telegram, telecopy, same day or overnight carrier, or when deposited in the United States first class or registered or certified mail return receipt requested, postage prepaid. Notices shall be sent: If to the Subordinating Creditor: Mr. Stanley Desjardins 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 Fax: 602.631.9005 -6- 67 If to the Company: Simula, Inc. 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 Attention: Mr. James Dodd, Chief Financial Officer Fax: 602.631.9005 If to CIT: The CIT Group/Business Credit, Inc. 300 South Grand Avenue, 3rd Floor Los Angeles, California 90071 Attention: Mr. Thomas Hayes, Vice President, Regional Credit Manager Fax: 213.613.2501 18. GENERAL PROVISIONS. When used in this Subordination Agreement all pronouns shall, wherever applicable, be deemed to include the plural as well as the masculine and feminine gender. This Subordination Agreement: shall inure to the benefit of CIT, its successors and assigns and any parent, subsidiary or affiliate of CIT; shall be binding upon the respective successors and assigns of the Subordinating Creditor; and shall pertain to the Company and its successors and assigns. This Subordination Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, and such counterparts shall together constitute but one and the same document. 19. CHOICE OF LAW. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. -7- 68 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Subordination Agreement effective as of the date above set forth. /s/ Stanley Desjardins ---------------------- Stanley Desjardins THE CIT GROUP/BUSINESS CREDIT, INC. By --------------------------- Title: -8- 69 The undersigned, the Company referred to in the foregoing Subordination Agreement, hereby agrees to comply with all of the terms and provisions of said Subordination Agreement in all respects. In the event of a breach by either the Company or Subordinating Creditor in the performance of any of the terms of the said Subordination Agreement, all of said Senior Debt shall, without notice or demand, become immediately due and payable. The Company hereby covenants that it will not make any payment on account of, recognize any forgiveness, assignment or transfer of, nor give any security for, the Subordinated Debt while said Subordination Agreement is in effect or until CIT's Senior Debt has been satisfied in full and said Subordination Agreement is terminated as herein provided. SIMULA, INC. By /s/ James C. Dodd ------------------ Title: -9- 70 Exhibit 10.41d GUARANTY Dated: December 30, 1999 To: THE CIT GROUP/BUSINESS CREDIT, INC. Address: 300 South Grand Avenue, 3rd Floor Los Angeles, California 90071 Gentlemen: Reference is made to that certain Financing Agreement dated of even date herewith, as amended (herein the "Agreement") between you and each of the undersigned (herein each a "Guarantor" and collectively the "Guarantors"). Each of the Guarantors hereby unconditionally jointly and severally guarantees and agrees to be liable for the full and indefeasible payment and performance when due of all now existing and future indebtedness, obligations or liabilities of the other Guarantors to you, howsoever arising, whether direct or indirect, absolute or contingent, secured or unsecured, whether arising under the Agreement as now written or as amended or supplemented hereafter, or by operation of law or otherwise, including, without limitation, all Obligations (as defined in the Agreement). Further each of the Guarantors agrees to pay to you on demand the amount of all expenses (including reasonable attorney's fees) incurred by you in collecting or attempting to collect any of the Obligations (as hereinafter defined), whether from such Guarantor, or from the other Guarantors or any other obligor, or in realizing upon any collateral; and agrees to pay any interest at the highest lawful rate on all amounts payable to you hereunder, even if such amount cannot be collected from any other obligor. (All of the aforementioned obligations, liabilities, expenses and interest are hereinafter collectively called the "Obligations"). To the extent you receive payment on account of Obligations guaranteed hereby, which payment is thereafter set aside or required to be repaid by you in whole or in part, then, to the extent of any sum not finally retained by you (regardless of whether such sum is recovered from you by any Guarantor, its trustee, or any other party acting for, on behalf of or through any Guarantor or its representative), the Guarantors' obligation to you under this Guaranty, as amended, modified or supplemented, shall remain in full force and effect (or be reinstated) until the Guarantors have made payment to you therefor, which payment shall be due upon demand. This Guaranty is executed as an inducement to you to enter into or continue the financing arrangement under the Agreement and to make the loans, advances, 1 71 extensions of credit or financial accommodations described therein, and is executed in consideration of your doing or having done any of the foregoing. Each of the Guarantors agrees that any of the foregoing shall be done or extended by you in your sole discretion, and shall be deemed to have been done or extended by you in consideration of and in reliance upon the execution of this Guaranty, but that nothing herein shall obligate you to do any of the foregoing. Notice of acceptance of this Guaranty, the making of loans or advances, or the extension of credit under the Agreement, the amendment, execution or termination of the Agreement or any other agreements in connection therewith, and presentment, demand, protest, notice of protest, notice of non-payment and all other notices to which the Guarantors may be entitled (whether under this Guaranty or the Agreement), and your reliance on this Guaranty are hereby waived. Each of the Guarantors also waives notice of: changes in terms or extensions of the time of payment, the taking and releasing of collateral or guarantees (including the release of any of the Guarantors) and the settlement, compromise or release of any Obligations, and agree that, as to each of the Guarantors, the amount of the Obligations shall not be diminished by any of the foregoing. Each of the Guarantors also agrees that you need not attempt to collect any Obligations from the other Guarantors or any other obligor or to realize upon any collateral, but may require the Guarantors to make immediate payment of Obligations to you when due or at any time thereafter. You shall not be liable for failure to collect Obligations or to realize upon any collateral or security therefor, or any part thereof, or for any delay in so doing, nor shall you be under any obligation to take any action whatsoever with regard thereto. This Guaranty is absolute, unconditional and continuing, regardless of the validity, regularity or enforceability of any of the Obligations or the fact that a security interest or lien in any collateral or security therefor may not be enforceable by you or may otherwise be subject to equities or defenses or prior claims in favor of others or may be invalid or defective in any way and for any reason, including any action, or failure to act, on your part. Payment by the Guarantors shall be made to you at your office from time to time on demand as Obligations become due, and one or more successive or concurrent actions may be brought hereon against the Guarantors (or any one or more of them) either in the same action or in separate actions. In the event any claim or action, or action on any judgment, based on this Guaranty, is made or brought against the Guarantors, each of the Guarantors agrees not to assert against you any set-off or counterclaim which the other Guarantors may have, and, further, each of the Guarantors agrees not to deduct, set-off, or seek to counterclaim for or recoup, any amounts which are or may be owed by you to such Guarantor, or for any loss of contribution from any other guarantor. Furthermore, in any litigation based on the Guaranty in which you and any of the Guarantors shall be adverse parties, the Guarantors hereby waive trial by jury and waive the right to interpose any defense 2 72 based upon any Statute of Limitations or any claim of laches and waive the performance of each and every condition precedent to which the Guarantors might otherwise be entitled by law. Each of the Guarantors hereby consents to the in personam jurisdiction of the courts of the State of California. In the event that you bring any action or suit in any court of record of New York State or the Federal Government to enforce any or all liabilities of the Guarantors hereunder, service of process may be made on the Guarantors by mailing a copy of the summons to the Guarantors at the address below set forth. All sums at any time to the credit of the Guarantors and any property of the Guarantors on which you at any time have a lien or security interest, or of which you at any time have possession, shall secure payment and performance of all Obligations and any and all other obligations of the Guarantors to you however arising. The Guarantors shall have no right of subrogation, indemnification or recourse to any Obligations or collateral or guarantees therefor, or to any assets of any of the Guarantors. This Guaranty may be terminated as to any one of the Guarantors only as of any Anniversary Date (as defined in the Agreement) and then only upon actual receipt by one of your officers of at least ninety (90) days prior written notice of termination sent by registered or certified mail; provided however, that any of the Guarantors so terminating this Guaranty shall remain bound hereunder, and this Guaranty shall continue in full force and effect, with respect to any and all Obligations created or arising prior to the effective date of such termination and with respect to any and all extensions, renewals or modifications of said pre-existing Obligations. Termination as to any one of the Guarantors shall not affect the obligations of any of the other Guarantors, nor relieve the one giving such notice from liability for any post termination collection expenses or interest. This is a continuing agreement and written notice as above provided shall be the only means of termination, notwithstanding the fact that for certain periods of time there may be no Obligations owing to you under the Agreement. Guarantors acknowledge and agree that termination of this Guaranty is an Event of Default under and as defined in the Agreement. Your books and records showing the loan account(s) maintained under the Agreement shall be admissible in evidence in any action or proceeding as prima facie proof of the items therein set forth. Your monthly statements rendered under the Agreement shall be binding upon the Guarantors (whether or not the Guarantors received copies thereof) and shall constitute an account stated unless you shall have received a written statement of the exceptions thereto within thirty (30) days after the statement was mailed by you. Each of the Guarantors expressly waives any and all rights of subrogation, 3 73 reimbursement, indemnity, exoneration, contribution or any other claim which it may now or hereafter have against the other Guarantors or any other person directly or contingently liable for the Obligations guaranteed hereunder, or against or with respect to any Guarantors property (including, without limitation, property collateralizing its Obligations to you) arising from the existence or performance of this Guaranty. Each of the Guarantors consents and agrees that, without notice to or by such Guarantor and without affecting or impairing in any way the obligations or liability of such Guarantor hereunder, you may, from time to time, exercise any right or remedy you may have with respect to the Obligations or any property securing any or all of the Obligations or any guaranty thereof, including without limitation, judicial foreclosure, nonjudicial foreclosure, exercise of a power of sale, and taking a deed, assignment or transfer in lieu of foreclosure as to any such property, and each Guarantor expressly waives any defense based upon the exercise of any such right or remedy, notwithstanding the effect thereof upon any of such Guarantor's rights, including without limitation, any destruction of Guarantor's right of subrogation against any Borrower under the Agreement and any destruction of such Guarantor's right of contribution or other right against any other guarantor of any or all of the Obligations or against any other person, whether by operation of Sections 580a, 580d or 726 of the California Code of Civil Procedure, or any comparable provisions of the laws of any other jurisdiction, or any other statutes or rules of law now or hereafter in effect, or otherwise. Pursuant to Section 2856 of the California Civil Code, each Guarantor waives all rights and defenses that such Guarantor may have because the Obligations are secured by real property. This means, among other things: (a) you may collect from any Guarantor without first foreclosing on any real or personal property collateral pledged by any Borrower or any other guarantor; and (b) if you forecloses on any real property collateral pledged by any Borrower or any other guarantor: (i) the amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (ii) you may collect from such Guarantor even if you, by foreclosing on such real property collateral, has destroyed any right such Guarantor may have to collect from any Borrower or such other guarantor. This is an unconditional and irrevocable waiver of any rights and defenses each Guarantor may have because the Obligations are secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. This Guaranty embodies the whole agreement of the parties and may not be modified except in writing, and no course of dealing between you and any of the Guarantors shall be effective to change or modify this Guaranty. Your failure to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any other time and from time to time thereafter, and 4 74 such rights shall be considered as cumulative rather than alternative. No knowledge of any breach or other nonobservance by any of the Guarantors of the terms and provisions of this Guaranty shall constitute a waiver thereof, nor a waiver of any obligations to be performed by the Guarantors hereunder. This Guaranty may be assigned by you and shall be for your benefit and for the benefit of any of your assignees or transferees, and shall cover any Obligations owed to you at the time of assignment or transfer as well as any and all future Obligations, loans, advances or extensions of credit made under the Agreement by, or otherwise owed to, such assignee or transferee. This instrument is executed and given in addition to, and not in substitution, reduction, replacement, or satisfaction of, any other endorsements or guarantees of the Obligations, now existing or hereafter executed by any or all of the Guarantors or others in your favor. When used in this agreement, all pronouns shall, wherever applicable, be deemed to include the singular and plural as well as the masculine, feminine, and neuter genders. This agreement shall inure to the benefit of you, your successors and assigns and any parent, subsidiary or affiliate of yours; shall be binding jointly and severally upon the Guarantors and upon the respective heirs, executors, administrators, successors and assigns of each of the Guarantors. This Guaranty may be executed in any number of counterparts, each of which when so executed shall be deemed an original and such counterparts shall together constitute but one and the same document. This Guaranty shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF the Guarantors have executed and delivered this Guaranty effective as of the date above set forth. SIMULA, INC. By /s/ James C. Dodd ----------------- Title: Executive Vice President and CFO -------------------------------- 5 75 AIRLINE INTERIORS, INC. By /s/ James C. Dodd ------------------ Title: Treasurer --------- ARTCRAFT INDUSTRIES CORP. By /s/ James C. Dodd ------------------ Title: Treasurer --------- SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.) By /s/ James C. Dodd ------------------ Title: Treasurer --------- INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. By /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA AUTOMOTIVE SAFETY DEVICES, INC. By /s/ James C. Dodd ------------------ Title: Treasurer --------- 6 76 SIMULA COMPOSITES CORPORATION By /s/ James C. Dodd ------------------ Title: Treasurer --------- SIMULA POLYMER SYSTEMS, INC. By /s/ James C. Dodd ------------------ Title: Treasurer --------- SIMULA SAFETY SYSTEMS, INC. By /s/ James C. Dodd ------------------ Title: Treasurer --------- SIMULA TECHNOLOGIES, INC. By /s/ James C. Dodd ------------------ Title: Treasurer --------- SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED By /s/ James C. Dodd ------------------ Title: Treasurer --------- INTAERO LTD. By /s/ James C. Dodd ------------------ Title: Treasurer --------- 7 77 CCEC CAPITAL CORP. By /s/ James C. Dodd ------------------ Title: Treasurer --------- 8 78 Exhibit 10.41e INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT is entered into as of the 30th day of December, 1999 (this "Agreement"), by and between LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership ("Term Lender"), and THE CIT GROUP/ BUSINESS CREDIT, INC. ("Revolving/Term Lender"). R E C I T A L S A. SIMULA, INC., an Arizona corporation ("Simula"), Simula's subsidiaries (such subsidiaries, together with Simula, being collectively referred to as "Debtors," and Simula or any such subsidiary being individually referred to as "Debtor") and Term Lender are parties to the Securities Purchase Agreement dated of even date herewith (as amended, supplemented or otherwise modified from time to time, the "Securities Purchase Agreement") pursuant to which, on the date hereof, Debtors are jointly and severally issuing and selling to Term Lender, and Term Lender is purchasing from Debtors, Secured Senior Notes dated of even date herewith in the aggregate principal amount of $20,000,000 (the "Senior Term Notes"), and Simula is issuing and selling to the Purchaser, and the Purchaser is purchasing from Simula, a Warrant to Purchase 850,000 Shares of Common Stock of Debtor (the "Warrant"), all on the terms and subject to the conditions contained in the Securities Purchase Agreement. B. In addition, concurrently with the execution of this Agreement, Revolving/Term Lender is providing to Debtors a senior, secured revolving and term credit facility in the aggregate principal amount of up to $22,000,000 pursuant to the Financing Agreement dated of even date herewith (the "Revolving/Term Loan Agreement") among Revolving/Term Lender and Debtors. C. Revolving/Term Lender and Term Lender are each unwilling to enter into their respective financing transactions with Debtors unless the other enters into this Agreement. D. Term Lender hereby acknowledges and affirms that Revolving/Term Lender's financial accommodations to Debtors constitute valuable consideration to Term Lender. Revolving/Term Lender hereby acknowledges and affirms that Term Lender's financial accommodations to Debtors also constitute valuable consideration to Revolving/Term Lender. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1 79 1. Definitions. In addition to the capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following respective meanings (such meanings to be equally applicable to the singular and the plural forms thereof): "Affiliate" shall mean, with respect to any specified Person, (i) any other Person that, directly or indirectly, owns or controls, or has the right to acquire, five percent (5%) or more of the Capital Stock of such specified Person, or (ii) any other Person that, directly or indirectly, controls, is controlled by, is under direct or indirect common control with, such specified Person or any Affiliate of such specified Person. "Collateral" shall mean all assets and property of Debtors or any of its or their Subsidiaries, whether real or personal, tangible or intangible, now existing or hereafter acquired, that is or may at any time be or become subject to a Lien in favor of Revolving/Term Lender to secure the Revolving/Term Indebtedness. "Foreclosure Remedy" shall mean the right to enforce a lien or security interest through foreclosure proceeding pursuant to chapter 5 of Article 9 of the Uniform Commercial Code, through judicial or non-judicial foreclosure with respect to real property collateral security, or through any other exercise of rights under a lien or through a security interest against collateral by the holder of the lien or security interest. "Insolvency Proceeding" shall mean any liquidation, bankruptcy, receivership, assignment for the benefit of creditors, or any other judicial, equitable, or administrative action or proceeding commenced by or against any Person or any of its assets or property under federal or state law and involving the adjustment, restructuring, or liquidation of any or all of the assets, obligations, business, or property of such Person. "Lien" means, with respect to any assets or property, any security deed, mortgage, deed to secure debt, deed of trust, lien, pledge, assignment, charge, security interest, title retention agreement, negative pledge, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in respect of such property, whether or not choate, vested, or perfected. "Person" shall mean any individual, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, limited liability partnership, or governmental (whether federal, state, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof) or other entity. "Pledged Stock" shall mean the capital stock of any Subsidiary of any Debtor that constitutes Collateral. "Proceeds" shall mean any cash, securities, or other property received upon the sale, transfer, lease or other disposition or collection of any of the Collateral, whether pursuant to foreclosure, voluntary disposition, sale or other disposition or collection in the ordinary course of business, or otherwise. 2 80 "Revolving/Term Indebtedness" shall mean all indebtedness, liabilities and other obligations of Debtors and any Revolving/Term Loan Guarantor, now existing or hereafter arising under the Revolving/Term Loan Agreement and the other Revolving/Term Loan Documents, as each may from time to time be amended, supplemented, extended, renewed, modified or restated in accordance with the terms of this Agreement, whether for principal, premium, interest, fees, expenses, indemnities or otherwise. "Revolving/Term Loan Default" shall mean a "Default" as defined in the Revolving/Term Loan Agreement. "Revolving/Term Loan Documents" shall mean (a) the Revolving/Term Loan Agreement, (b) the Guaranty dated of even date herewith executed by the Debtors in favor of Revolving/Term Lender, and (c) any other agreements, security agreements, pledge agreements, instruments and documents executed on the date hereof and delivered to, or in favor of, Revolving/Term Lender in connection therewith. "Revolving/Term Loan Event of Default" shall mean an "Event of Default" as defined in the Revolving/Term Loan Agreement. "Revolving/Term Loan Guarantor" shall mean any Person which has guaranteed the Revolving/Term Loan. "Senior Indebtedness" shall mean the Term Loan Indebtedness, the Revolving/Term Loan Indebtedness or both, as applicable. "Senior Lender" shall mean Term Lender, Revolving/Term Lender or both, as applicable. "Senior Loan Documents" shall mean the Term Loan Documents or the Revolving/Term Loan Documents, as applicable. "Standstill Notice" shall mean a written notice furnished by Revolving/Term Lender to Term Lender that a Revolving/Term Loan Event of Default has occurred and is continuing and containing in all capital letters the following text: "THIS IS A STANDSTILL NOTICE UNDER THE TERMS OF THE INTERCREDITOR AGREEMENT DATED DECEMBER 30, 1999." "Standstill Period" shall mean the period commencing with the date of receipt by Term Lender of a Standstill Notice and ending on the earliest to occur of the following: (a) Payment in full, in cash, and satisfaction of all the Revolving/Term Indebtedness; 3 81 (b) Acceleration of all or any portion of the Revolving/Term Indebtedness or any exercise of any Foreclosure Remedy by Revolving/Term Lender; (c) The initiation of any Insolvency Proceeding involving Debtor; (d) The end of the 135-day period starting with the date of receipt of the Standstill Notice by Term Lender; or (e) The date which is five (5) days following the date of receipt by Debtors of written notice from Revolving/Term Lender of its intent to terminate or suspend its obligation to Debtor to make further advances or loans or allow the incurrence of letter of credit obligations. "Term Indebtedness" shall mean all indebtedness, liabilities and other obligations of Debtors and any Term Loan Guarantor, now existing or hereafter arising under the Term Loan Agreement and the other Term Loan Documents, as each may from time to time be amended, supplemented, extended, renewed, modified or restated in accordance with the terms of this Agreement, whether for principal, premium, interest, fees, expenses, indemnities or otherwise. "Term Loan Default" shall mean a "Default" as defined in the Securities Purchase Agreement. "Term Loan Documents" shall mean (i) the Securities Purchase Agreement, (ii) the Senior Term Notes, (iii) the Guaranty; (iv) the Security Agreement among Debtors and Term Lender, (v) the security agreement with respect to intellectual property of even date herewith between Debtors and Term Lender, (vi) the Stock Pledge Agreement of even date herewith between Debtors and Term Lender, (vii) such other documents, agreements and instruments as are executed and delivered in connection with the foregoing. "Term Loan Event of Default" shall mean an "Event of Default" as defined in the Securities Purchase Agreement. "Term Loan Guarantor" shall mean any Person which has guaranteed the Senior Term Notes. "Term Loan Payments" shall mean all payments of any amounts due pursuant to the Senior Term Notes or any other Term Loan Document, whether of principal, interest or otherwise. 2. No Subordination of Indebtedness. The Revolving/Term Indebtedness and the Term Indebtedness shall rank pari passu in right to payment with one another and neither shall be subordinate in right of payment to the other; provided, however, in no event shall such pari passu right to payment affect the priority of Revolving/Term Lender as against Term Lender with respect to the Collateral and the Proceeds as hereinafter set forth. 4 82 3. Priority of Security Interests and of Rights to Proceeds; Release of Liens; Insurance Proceeds. (a) Notwithstanding the timing, order or manner of the grant or perfection of any of their respective Liens, the Liens now or hereafter held by Revolving/Term Lender in any Collateral and Proceeds to secure the Revolving/Term Indebtedness shall be senior and prior to any Liens now or hereafter held by or for the benefit of Term Lender in or to any of the Collateral and Proceeds. The priorities set forth in this Agreement shall be effective notwithstanding anything to the contrary contained in the Revolving/Term Loan Documents, the Term Loan Documents, or any plan of reorganization or similar document filed by or on behalf of any Debtor or any Affiliate of any Debtor under any Insolvency Proceeding of any Debtor, including any prior perfection of a Lien under the provisions of the Uniform Commercial Code or any other applicable laws of any jurisdiction, or the existence of any present or future filing of financing statements under the Uniform Commercial Code or other applicable laws of any jurisdiction in which such filing has been made, or any other recordation or filing of any document. (b) Revolving/Term Lender and Term Lender acknowledge and agree that, pursuant to the Revolving/Term Loan Documents all of the cash flow of Debtors is administered by Revolving/Term Lender, is derived from the sale of inventory and other Collateral and the collection of accounts receivable (also constituting Collateral), is deposited into deposit accounts which are also Collateral, and, therefore, all of the foregoing constitutes Collateral and Proceeds. As Collateral and Proceeds, such cash flow and other assets are all subject to the rights of Revolving/Term Lender as the holder of the senior and prior Lien in the Collateral and the Proceeds, and, pursuant to the administration of the Revolving/Term Indebtedness under the terms of the Revolving/Term Loan Documents, all such cash flow and Proceeds are paid over and delivered, or caused to be paid over and delivered, by Debtors to Revolving/Term Lender for application against the Revolving/Term Indebtedness, subject to the Debtors' right to repay and reborrow Revolving/Term Indebtedness under the Revolving/Term Loan Documents. (c) In connection with: (i) any sale or other disposition of assets other than the capital stock of a Debtor or all or a substantial portion of the assets of a Debtor (collectively, a "Non-Material Asset Sale"); or (ii) the sale or other disposition of the capital stock of a Debtor or all or a substantial portion of the assets of a Debtor (a "Material Asset Sale") occurring after the declaration by Revolving/Term Lender of a Revolving/Term Lender Event of Default and during the continuance thereof, arising from or associated with the existence of overadvances under (and as defined in Section 3(1) of) the Revolving/Term Loan Agreement (hereinafter "Overadvances"), the commencement of an Insolvency Proceeding by any Debtor, or any similar material Revolving/Term Lender Event of Default, or the initiation of a Foreclosure Remedy against any of the Collateral by Revolving/Term Lender, then, in the case of either of the foregoing clauses (i) or (ii), if Revolving/Term Lender releases any of its Liens on any part of the Collateral in connection with any such sale or other disposition, Term 5 83 Lender agrees that it shall unconditionally and simultaneously release its liens thereon and Term Lender shall execute and deliver to Revolving/Term Lender or the Debtors, as applicable, such termination statements, releases and other documents as Revolving/Term Lender or the Debtors may reasonably request to effectuate such release; provided, however it is expressly understood and agreed that the Lien granted to Term Lender shall, subject to all of the provisions of this Agreement, continue in the Proceeds arising from any such sale or other disposition if such Proceeds are not applied to the Revolving/Term Indebtedness in accordance with the Revolving/Term Loan Documents, subject to the Debtors' right to repay and reborrow Revolving/Term Indebtedness under the Revolving/Term Loan Documents; provided, further, however, it is further understood and agreed that any such release of Lien by Term Lender shall not be deemed to be a waiver of or consent to any violation or breach of any provision of the Term Loan Documents caused by any such sale or other disposition of such Collateral and Term Lender shall continue to be entitled to all of its rights and remedies to enforce its rights to payments of the Term Indebtedness under the Term Loan Documents. Notwithstanding the foregoing provisions of this subsection (c), in connection with any sale or disposition of either Non-Material Assets or Material Assets at a time when no Revolving/Term Lender Event of Default has occurred and is continuing, the Revolving/Term Lender's term loan under the Revolving/Term Loan Agreement as of the date hereof has been repaid, or will be repaid from the Proceeds of such sale or disposition, in full, in cash, and the Term Lender's LLCP Term Loan A Debt (as defined in the Revolving/Term Loan Agreement) has not been repaid in full, in cash, then if Term Lender releases any of its Liens on any part of the Collateral in connection with any such sale or disposition thereof, Revolving/Term Lender agrees that it shall unconditionally and simultaneously release its liens thereon and consent thereto as not constituting a Revolving/Term Loan Event of Default, and Revolving/Term Lender shall execute and deliver to Term Lender or the Debtors, as applicable, such termination statements, releases and other documents as Term Lender or the Debtors may reasonably request to effectuate such release; provided that, in light of the relative Lien priorities, the Proceeds of any such sale or disposition shall be applied first to Revolving/Term Lender to repay such of Revolving/Term Lender's revolving loan advances as are then outstanding as were advanced against the assets being sold or disposed of, second to Revolving/Term Lender in repayment of the its term loan, third to Term Lender in repayment of the LLCP Term Loan A Debt, and finally to Revolving/Term Lender for application against the Revolving/Term Indebtedness , subject to the Debtors' right to repay and reborrow Revolving/Term Indebtedness under the Revolving/Term Loan Documents. (d) Unless and until the Revolving/Term Indebtedness is paid in full, in cash, Revolving/Term Lender shall have the sole and exclusive right, subject to the rights of the Debtors under the Revolving/Term Loan Documents, to adjust settlement of claims under any insurance policy covering the Collateral in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding affecting the Collateral, and all payments of claims and awards are Proceeds hereunder. Notwithstanding the foregoing provisions of this subsection (d), with respect to the key-man life insurance policies respecting certain officers, directors and principals of the Debtors, Term Lender shall have the sole and 6 84 exclusive right to settle and adjust any claims and to receive proceeds of such policies for application against the Term Indebtedness. 4. Standstill. During a Standstill Period, Term Lender shall not have any right to enforce any Liens in, foreclose, levy or execute upon, or attach any Collateral, whether by private or judicial action or otherwise. The preceding sentence is only for the benefit of Revolving/Term Lender and, as between Term Lender and Debtors or any Term Loan Guarantor, shall not constitute a waiver by Term Lender of any default or event of default or of its rights, powers or remedies with respect to Debtor or any Term Loan Guarantor. 5. Consent to Liens. Revolving/Term Lender hereby consents to the grant or creation of Liens on the Collateral and any other assets of Debtors in favor of Term Lender under the Term Loan Documents and agrees that the grant, perfection, maintenance or existence of such Liens does not and shall not constitute a Revolving/Term Loan Default or a Revolving/Term Loan Event of Default. In addition, Term Lender hereby consents to the grant or creation of Liens on the Collateral in favor of Revolving/Term Lender under the Revolving/Term Loan Documents, and agrees that the grant or existence of such Liens does not and shall not constitute a Term Loan Default or a Term Loan Event of Default. 6. Standstill Notices. Only one (1) Standstill Notice may be given within any 365-day period, regardless of the number of Revolving/Term Loan Events of Default which occur within or outside of any Standstill Period. 7. Amendment of Documents. (a) The Revolving/ Term Loan Documents shall not be amended without the prior written consent of Term Lender (which consent will not be unreasonably withheld) for (i) a change in the amount of the "Line of Credit" (as defined in the Revolving/ Term Loan Documents), (ii) an amendment of the definitions of "Availability," "Availability Reserve," "Eligible Accounts Receivable" or "Eligible Inventory," in each case as set forth in the Revolving/ Term Loan Documents on the date hereof (or any of the definitions of the defined terms used in such definitions), (iii) an amendment to increase the rate of interest set for Revolving Loans pursuant to the Revolving/ Term Loan Documents or the Default Rate of Interest (as each term is defined in the Revolving/ Term Loan Documents on the date hereof (provided, that the foregoing shall not apply to the application of the Default Rate of Interest in accordance with the Revolving/ Term Loan Documents as in effect on the date hereof); (iv) a reduction of the maturity date of any payment of principal or interest, (v) an extension of the final maturity date of the Revolving/Term Indebtedness of three years from the date hereof other than up to two extensions of 90 days each if Debtors shall have failed to arrange for refinancing or other repayment in full, in cash, of the Revolving/Term Indebtedness by such date, (vi) an amendment of the Revolving/ Term Loan Documents as in effect as of the date hereof to either add or amend an Event of Default (as defined in the Revolving/ Term Loan Documents) (or any of the definitions used therein) to make, or have the effect of making, such Event of Default more restrictive on the business or operations of the Debtors; or (vii) an 7 85 amendment to the Revolving/ Term Loan Documents as in effect on the date hereof to amend any of the financial covenants set forth therein (or any of the definitions used therein). Revolving/Term Lender shall not make any voluntary Overadvances under the Revolving/Term Loan Documents in excess of $1,700,000 other than Overadvances, in Revolving/Term Lender's reasonable business judgment, necessary to pay the actual, necessary costs and expenses of preserving the Collateral (and Revolving/Term Lender shall give Term Lender written notice with respect to any such costs and expenses as soon and as frequently as practicable). (b) The Term Loan Documents shall not be amended without obtaining the prior written consent of Revolving/Term Lender (which consent will not be unreasonably withheld) for (i) an amendment to increase the rate of interest set for the Term Indebtedness (provided, that the foregoing shall not apply to the application of the Default Rate in accordance with the Term Loan Documents), (ii) any increase in the principal amount of the Term Indebtedness in excess of $2,000,000 (which additional amount shall be permitted only if the maturity date of such additional amount is no earlier than the maturity date of the Term Indebtedness under the Term Loan Documents in effect as of the date hereof) or any installment of principal due thereunder, (iii) reduction of the maturity date of any payment of principal or interest, (iv) providing for any additional financial covenants or events of default or making more restrictive any existing covenants or events of default applicable to the Debtors. In addition, Term Lender will not request or obtain any additional collateral or security for the Term Indebtedness except to the extent that Revolving/Term Lender has been offered a senior Lien to secure the Revolving/Term Indebtedness on such collateral in writing. 8. Senior Indebtedness Owed Only to Senior Lenders. Each Senior Lender represents and warrants that it has not previously assigned any interest in its Senior Indebtedness or Senior Loan Documents, that no other Person owns an interest in any of such Senior Indebtedness or Senior Loan Documents (whether as joint holders, participants or otherwise), and that such entire Senior Indebtedness is owing only to such Senior Lender. 9. Pledged Stock. As an accommodation only, Revolving/Term Lender hereby agrees that it shall hold the Pledged Stock for its own benefit and for the benefit of Term Lender solely, as to Term Lender, for the purpose of perfecting Term Lender's security interest therein, and, upon full and final payment, in cash, of the Revolving/Term Indebtedness, Revolving/Term Lender shall deliver to Term Lender any and all certificates or other documents representing such Pledged Stock, or as otherwise directed by Term Lender or order of any court. It is expressly acknowledged and agreed that Revolving/Term Lender may deal with such Pledged Stock in accordance with its usual practices in the ordinary course of business and shall adhere to the same standards of conduct as would be the case if there were no subordinate Liens thereon, and Revolving/Term Lender shall have no liability to Term Lender with respect to Revolving/Term Lender's possession of such pledged stock except for acts or omissions of Revolving/Term Lender which are grossly negligent or constitute willful misconduct. 8 86 10. Reinstatement. The provisions of this Agreement shall continue to be effective or be reinstated, and the Revolving/Term Indebtedness shall not be deemed to be paid in full, in cash, as the case may be, if at any time any payment of Revolving/Term Indebtedness is rescinded or avoided, or must otherwise be returned by Revolving/Term Lender pursuant to any Insolvency Proceeding or otherwise, all as though such payment had not been made. 11. Nonimpairment. No right of either party enforce the provisions hereof shall at any time in any way be prejudiced or impaired by any act or failure to act by the other party or Debtors or any guarantor, or any noncompliance by Debtors or by the other Person with the terms and provisions and covenants herein contained, regardless of any knowledge thereof that the party may have or with which the party may otherwise be charged. 12. Instrument Legends. Each Senior Lender shall forthwith inscribe on the face of any promissory note and any other instrument evidencing its Senior Indebtedness or any portion thereof a legend conspicuously indicating that it is subject to the terms of this Agreement, and shall forthwith deliver copies thereof to the other Senior Lender. For purposes of this Section 12, the following legend (or a substantially similar legend) shall be acceptable: "PAYMENT OF THE INDEBTEDNESS EVIDENCED BY THIS SECURITY, INCLUDING PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IS SUBJECT TO THE TERMS AND CONDITIONS OF AN INTERCREDITOR AGREEMENT DATED OF EVEN DATE HEREWITH BETWEEN LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., AS THE INITIAL HOLDER OF THIS SECURITY, AND THE CIT GROUP/ BUSINESS CREDIT, INC. A COPY OF SUCH INTERCREDITOR AGREEMENT MAY BE OBTAINED FROM THE ISSUER UPON REQUEST." 13. Additional Remedies. If either party violates any of the terms of this Agreement, in addition to any remedies in law, at equity or otherwise, the other party may restrain such violation in any court of law or equity and may interpose this Agreement as a defense in any action by the violating party. 14. Certain Waivers. (a) All Senior Indebtedness shall be deemed to have been made or incurred in reliance upon the terms and other provisions of this Agreement. Each Senior Lender waives all notice of the acceptance by the other Senior Lender of the provisions of this Agreement and agrees that the other Senior Lender has made no representations or warranties with respect to the legality, validity, enforceability, collectability or perfection of any Senior Indebtedness or any liens held by it in connection therewith. 9 87 (b) Each Senior Lender shall be entitled to manage and supervise its loans or other financial accommodations to Debtors in accordance with applicable laws and its normal business practices, modified from time to time as it deems appropriate under the circumstances, without regard to the existence of any rights that the other Senior Lender may now or hereafter have in or to any Collateral, except that each Senior Lender shall comply with the terms of this Agreement. (c) No Senior Lender shall have any liability to the other Senior Lender as a result of any and all lawful actions not in breach of this Agreement that such Senior Lender takes or omits to take (including actions with respect to the creation, perfection or continuation of its liens, actions with respect to the occurrence of a default or event of default under its Senior Loan Documents, actions with respect to the foreclosure, sale, release or failure to realize upon, any Collateral (except that each Senior Lender shall deal with any Collateral in its possession in accordance with its usual practices in the ordinary course of business and shall have no liability to the other except for acts or omissions of which are grossly negligent or constitute willful misconduct), and actions with respect to the collection of any claim for all or any part of its Senior Indebtedness from any account debtor of Debtor or any other Person). Without limiting the generality of the foregoing, Term Lender waives any otherwise valid legal or equitable right (i) to require Revolving/Term Lender to marshal any portion of the Collateral or otherwise to seek satisfaction from any particular property of Debtor or from any other Person, (ii) to oppose any motion or application by Revolving/Term Lender or Debtor to allow use of cash collateral, provide adequate protection of Revolving/Term Lender's interest in the Collateral, or grant relief from automatic stay to permit Revolving/Term Lender to enforce its rights and remedies with respect to the Collateral, or (iii) otherwise to prohibit, delay, control, or limit in any manner the sale or other disposition by Revolving/Term Lender of any portion of the Collateral. 15. Other Waivers. No waiver shall be deemed to be made by Revolving/Term Lender or Term Lender of any of their respective rights hereunder unless it is in writing signed by the waiving party. Each such waiver shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the waiving party or the obligations of the other party to the waiving party in any other respect at any other time. 16. Information Concerning Financial Condition. Except as otherwise expressly provided for in this Agreement, each Senior Lender acknowledges that the other Senior Lender has no obligation to keep it informed of the financial condition of Debtors or of other circumstances bearing upon the risk of nonpayment of the Revolving/Term Indebtedness or Term Indebtedness. Each of Revolving/Term Lender and Term Lender hereby agree that the other shall have no duty to advise it of information known to it regarding such condition or any such circumstances. In the event Revolving/Term Lender or Term Lender (the "providing party"), in its sole discretion, undertakes, at any time or from time to time, to provide any such information to the other (the "receiving party"), the providing party shall be under no obligation to (a) provide any such information to the receiving party on any subsequent occasion, (b) undertake any investigation not a part of its regular business routine, or 10 88 (c) disclose any information that, pursuant to its commercial finance practices, the providing party wishes to maintain as confidential. Notwithstanding the foregoing, this paragraph is subject to the notices required by Section 18. 17. Third-Party Beneficiaries; Termination. (a) This Agreement is solely for the benefit of Revolving/Term Lender, Term Lender and their respective successors and permitted assigns, and neither Debtor nor any other Person is intended to be a third-party beneficiary hereunder or to have any right, benefit, priority or interest under, or because of the existence of, or to have any right to enforce, this Agreement. This Agreement is intended solely for the purpose of defining the relative rights of Revolving/Term Lender and Term Lender and is not intended to or will impair, as between Debtor, any Revolving/Term Loan Guarantor, any Term Loan Guarantor and their respective creditors other than Revolving/Term Lender and Term Lender, the respective obligations, which are absolute and unconditional, of Debtor, the Revolving/Term Loan Guarantors and the Term Loan Guarantors to Revolving/Term Lender or Term Lender. (b) Revolving/Term Lender and Term Lender shall have the right to modify or terminate this Agreement at any time without notice to or approval of Debtor or any other Person upon the written consent of Term Lender and Revolving/Term Lender. In addition, Term Lender may terminate this Agreement upon the full payment and satisfaction of the Revolving/Term Indebtedness and termination of the Revolving/Term Loan Documents. 18. Notices. (a) Revolving/Term Lender shall use it best efforts to give prompt written notice to Term Lender of (i) the declaration by Revolving/Term Lender of any Revolving/Term Loan Event of Default or (ii) the expiration of any Standstill Period (including notice of the issuance of the notice to Debtors under clause (e) of the definition of Standstill Period set forth hereinabove); provided that any failure by Revolving/Term Lender to provide such notice shall not affect Revolving/Term Lender's rights arising from any such Revolving/Term Loan Event of Default, and shall not result in any liability to Term Lender other than liability for any such failure where such failure was a result of gross negligence or wilful misconduct (and an mere inadvertent omission to give such notice shall not be deemed to be either gross negligence or willful misconduct). Term Lender shall use its best efforts to give prompt written notice to Revolving/Term Lender of the declaration by Term Lender of any Term Loan Event of Default; provided that any failure by Term Lender to provide such notice shall not affect Term Lender's rights arising from such Term Loan Event of Default or result in any liability to Revolving/Term Lender other than liability for any such failure where such failure was a result of gross negligence or wilful misconduct (and an mere inadvertent omission to give such notice shall not be deemed to be either gross negligence or willful misconduct). 11 89 (b) Term Lender shall have the right, but not the obligation, to cure any default under the Revolving/Term Loan Documents which, after notice or lapse of time or both would become Revolving/Term Loan Event of Default at any time prior to such default becoming a Revolving/Term Loan Event of Default. In addition, Term Lender shall have the right, but not the obligation, to cure any Revolving/Term Loan Event of Default, if curable. (c) Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) business days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopier or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this section), (c) one business day after deposit with a reputable overnight courier with all charges prepaid, or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number as follows: If to Term Lender, to: Levine Leichtman Capital Partners II, L.P. c/o Levine Leichtman Capital Partners, Inc. 335 North Maple Drive, Suite 240 Beverly Hills, CA 90210 Attention: Arthur E. Levine, President Telephone: (310) 275-5335 Telecopier: (310) 275-1441 If to Revolving/Term Lender, to: The CIT Group/Business Credit, Inc. 300 S. Grand Avenue, 3rd Floor Los Angeles, CA 90071 Attention: Thomas Hayes Telephone: (213) 613-2505 Telecopier: (213) 613-2501 If to any Debtor, to: Simula, Inc. 2700 N. Central Avenue, Suite 1000 12 90 Phoenix, AZ 85004 Attention: Donald W. Townsend Telephone: (602) 631-4005 Telecopier: (602) 631-9005 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. 19. Costs and Attorneys' Fees. If any action, suit or proceeding is commenced by or between any of the parties in connection with this Agreement, neither party shall be entitled to recover from the other any costs, expenses or attorneys' fees incurred in connection therewith. 20. Successors and Assigns. This Agreement shall be binding on, and shall inure to the benefit of, the parties and their respective successors and assigns (including, in the case of any Insolvency Proceeding, any receiver, assignee for the benefit of creditors, trustee or debtor in possession on behalf of such Person), except as otherwise provided herein. This Agreement is freely assignable at any time by Revolving/Term Lender or Term Lender, provided that any such assignment is in conjunction with the assignment or refinancing in whole or in part of the Revolving/Term Indebtedness or Term Indebtedness, as the case may be, and that such assignment is subject to the terms of this Agreement. 21. Integrated Agreement. This Agreement sets forth the entire understanding of the parties with respect to the matters set forth herein and may not be modified or amended except in a writing signed by all parties. 22. Interpretation. The captions in this Agreement are for convenience of reference only, do not constitute a part of this Agreement and are not to be considered in construing or interpreting this Agreement. All section, preamble, recital, exhibit, schedule, disclosure schedule, annex, clause and party references are to this Agreement unless otherwise stated. No party, nor its counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions of this Agreement, and all provisions of this Agreement shall be construed in accordance with their fair meaning, and not strictly for or against any party. 23. Authority. Each of the signatories hereto certifies that such party has all necessary authority to execute this Agreement. 24. Counterparts. This Agreement may be executed in two or more counterparts and by facsimile, each of which shall be deemed an original, but all of which together shall constitute one instrument. 25. GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA 13 91 APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW OR CONFLICT OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. 26. CONSENT TO JURISDICTION AND VENUE. REVOLVING/TERM LENDER AND TERM LENDER HEREBY CONSENT AND AGREE THAT ALL ACTIONS, SUITS OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED IN STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY AND ALL CLAIMS, CONTROVERSIES AND DISPUTES ARISING OUT OF THIS AGREEMENT OR ANY OTHER MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. REVOLVING/TERM LENDER AND TERM LENDER HEREBY (A) IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION, SUIT OR OTHER PROCEEDING COMMENCED IN ANY SUCH COURT, (B) WAIVE ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR ANY OBJECTION THAT SUCH PERSON MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION OR IMPROPER VENUE AND (C) CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. REVOLVING/TERM LENDER AND TERM LENDER HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT OR OTHER PROCESS ISSUED IN ANY SUCH ACTION, SUIT OR OTHER PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE ADDRESS SET FORTH IN SECTION 18 (NOTICES) AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PERSON'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID. 27. WAIVER OF JURY TRIAL. EACH TERM LENDER AND REVOLVING/TERM LENDER WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS GUARANTY OR ANY ACTION OR ACTIONS ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER INVESTMENT DOCUMENT, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS. 14 92 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. "TERM LENDER" LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership By: LLCP California Equity Partners II, L.P., a California limited partnership, its General Partner By: Levine Leichtman Capital Partners, Inc., a California corporation, its General Partner By: /s/ Lauren B. Leichtman ----------------------- Lauren B. Leichtman Chief Executive Officer "REVOLVING/TERM LENDER" THE CIT GROUP/ BUSINESS CREDIT, INC. By: /s/ Thomas Heyes ----------------- Name: Thomas Heyes -------------- Title: Senior Vice President ----------------------- 15 93 ACKNOWLEDGMENT Each of the undersigned hereby acknowledges and consents to the foregoing Intercreditor Agreement and agrees to cooperate with the parties thereto to insure enforcement of the priorities and other provisions specified therein. Dated as of December 30, 1999 "DEBTORS" SIMULA, INC., an Arizona corporation By: /s/ James C. Dodd ----------------- Title: Executive Vice President and CFO -------------------------------- AIRLINE INTERIORS, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- ARTCRAFT INDUSTRIES CORP. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA TRANSPORTATION EQUIPMENT CORPORATION (formerly known as INTAERO INC.) By: /s/ James C. Dodd ----------------- Title: Treasurer --------- INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- 16 94 SIMULA AUTOMOTIVE SAFETY DEVICES, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA COMPOSITES CORPORATION By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA POLYMER SYSTEMS, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA SAFETY SYSTEMS, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA TECHNOLOGIES, INC. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED By: /s/ James C. Dodd ----------------- Title: Treasurer --------- CCEC CAPITAL CORP. By: /s/ James C. Dodd ----------------- Title: Treasurer --------- 17 EX-10.43 4 EX-10.43 1 Exhibit 10.43 EMPLOYMENT AGREEMENT THIS AGREEMENT is by and between Simula, Inc., an Arizona corporation (the "Company") and Joe Coltman (the "Executive"), dated effective as of February 1, 2000 (the "Effective Date"). BACKGROUND The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued employment and dedication of the Executive. The Board has further determined that it is desirable to provide the Executive with compensation and benefits terms which adequately compensate the executive for the services he renders to the Company, and, to ensure that such compensation and benefits are consistent with those of like executives of other public companies. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: AGREEMENT 1. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). Unless terminated by the Company for Cause (as defined in Section 3.2 below) or by the Executive for Good Reason (as defined in Section 3.3 below), this Agreement shall be automatically renewed, under the same terms and conditions, for continuous successive three year terms. 2. TERMS OF EMPLOYMENT. 2.1 Position and Duties. (a) During the Employment Period, the Executive shall be employed in an executive capacity in the positions of Executive Vice-President - Technology of the Company at Company headquarters in Phoenix, Arizona; (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the 2 business and affairs of the Company and to use the Executive's best efforts to perform faithfully and efficiently such responsibilities. 2.2 Compensation. (a) Base Salary. The Executive shall receive an initial annual base salary ("Initial Base Salary") of One Hundred Sixty Five Thousand Dollars ($165,000). Thereafter, the Executive's salary and total compensation shall be reviewed on a periodic basis by the Compensation Committee of the Board to determine what, if any, increases shall be made thereto. The base salary payable to the Executive in any given year, including the Initial Base Salary, is hereafter referred to as the "Annual Base Salary." Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as increased. The Annual Base Salary shall in all instances be payable in twenty-six (26) equal bi-weekly installments. (b) Annual Bonus or Option Plans. In addition to Annual Base Salary, the Executive shall be eligible to participate in any applicable Company bonus plan or program or stock option plan or program in effect immediately prior to the Effective Date, or put into effect by the Board at any time thereafter. (c) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities, savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company to other executives of the Company; provided however, the dollar value awarded Executive in the reasonable discretion of management need not be equal to that awarded to all other executives. (d) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, tuition reimbursement, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company, but in no event 2 3 shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs provided generally at any time after the Effective Date to other executives of the Company. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in the conduct of Company business. (f) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company in all respects as in effect for the Executive during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other executives of the Company. (g) Tuition for Advanced Degree. Company agrees to reimburse Employee for tuition and other appropriate costs incurred by the Employee in pursuing an advanced degree as agreed between Company and Employee. Reimbursement shall be pursuant to the Company's standard policy. Employee agrees that in the event he terminates his employment with the Company other than for Good Reason, or is terminated for Cause, at any time during the period he is pursuing the advanced degree, or within one year after receiving such advanced degree, Employee will refund to the Company in full the amount reimbursed and paid by the Company to date. Employee's obligation to refund tuition and costs advanced shall not pertain if Employee's employment is terminated pursuant to a change of control, as defined in the Change of Control Agreement of even date herewith. 3. TERMINATION OF EMPLOYMENT. 3.1 Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that any Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness certified by a physician selected by the Company or its insurers and acceptable to the Executive. 3 4 3.2 Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done by the Executive in bad faith. 3.3 Good Reason. The Executive's employment may be terminated by the Executive for Good Reason at any time within 90 days after the Executive first has actual knowledge of the occurrence of such Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to the Executive of any duties that are not of an executive nature, or any other action by the Company which results in a material diminution in the Executive's position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (b) any failure by the Company to comply with any of the provisions of Section 2.2 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (c) the Company's requiring the Executive, without the Executive's consent and full agreement, to be based at any office or position other than as provided in Section 2.1(a) hereof; (d) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (e) any failure by the Company to comply with and satisfy Section 9.3 of this Agreement. 3.4 Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" means a written notice which: 4 5 (a) indicates the specific termination provision in this Agreement relied upon; (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (c) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 3.5 Date of Termination. "Date of Termination" means: (a) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (b) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (c) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be. 4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 4.1 Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or the death or Disability of the Executive or the Executive shall terminate employment for Good Reason, the Company shall pay to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination the aggregate of the following amounts: (a) The amount of Annual Base Salary compensation which would have been payable to the Executive over the period then remaining under 5 6 this Agreement, as it may have been renewed as provided for in Section 1 hereof; (b) Any declared and accrued, but as of then unpaid, bonus or stock options grant (whether or not vested) to which the Execute would have received but for such termination. Additionally, any stock options owned or granted shall be deemed immediately vested, not forfeitable, and shall be the property of Executive, exercisable according to their terms for the balance of the term of years of the options; (c) Any accrued vacation pay; (d) Any amounts payable pursuant to the Company's Defined Benefit Pension Plan, 401(k) plan, including such amounts which would have accrued (whether or not vested) if the Executive's employment had continued after the Date of Termination for the period then remaining under this Agreement, as it may have been renewed as provided for in Section 1 hereof; (e) Any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); (f) For the remaining term of this Agreement, as it may have been renewed pursuant to Section 1 hereof, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2.2(d) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other executives of the Company and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility, and for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed for the remaining term of this Agreement, as it may have been renewed pursuant to Section 1 hereof, and to have retired on the last day of such period; and 6 7 (g) The Company shall, at its sole expense as incurred, provide the Executive with out-placement services, the scope and provider of which shall be selected by the Executive in the Executive's sole discretion (but the total cost thereof shall not exceed $50,000). 4.2 Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than full vesting and non-forfeiture of stock options granted to Executive, and the timely payment or provision of Other Benefits. Such amounts shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4.2 shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company to the estates and beneficiaries of other executives of the Company under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other executives of the Company and their beneficiaries. 4.3 Disability. If the Executive's employment is terminated by reason of the Executive's Disability under Section 3.1 during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for the timely payment or provision of (i) Base Salary and, (ii) accrued bonus through the Termination Date, (iii) payment of pension, 401(k), and Other Benefits, (iv) full vesting and non-forfeiture of stock options, and, (v) the receipt of fully-paid Welfare Benefit Plans under Section 2.2(d) for the balance of the term of this Agreement. In addition, Executive shall be paid for the term of this Agreement at regular pay periods that equal the difference between his Annual Base Salary and the disability insurance payment received by the disabled Executive under the Company's disability insurance program. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4.3 shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other executives of the Company and their families. 7 8 4.4 Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive: (x) the Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent therefore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for items (x), (y) and (z) of this paragraph. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor, subject to Section 10.6, shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement. Executive is currently a party to, and in the future may be a party to other, employment arrangements, agreements, and incentive plans, including but not limited to, stock option agreements and a change of control agreement. This Agreement shall not supersede any of the terms or conditions of such other agreements. To the extent of any inconsistency in these agreements, the agreements shall be interpreted and applied in the way to confer upon the employee the greatest benefits. The agreements shall be read and applied consistent with each other, but in the event of a conflict, the terms most favorable to the employee will be applied from the various provisions of the agreements in the aggregate. 6. FULL SETTLEMENT; LEGAL FEES. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 4.1(f), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability or entitlement under, any provision of this Agreement or any guarantee of performance thereof (whether such contest is between the Company and the 8 9 Executive or between either of them and any third party, and including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate ("Applicable Federal Rate") provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. 7.1 Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any corresponding provisions of state or local tax laws, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income or employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 7.2 Subject to the provisions of Section 7.3, all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. 7.3 The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim. 7.4 If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7.3, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's 9 10 complying with the requirements of Section 7.3) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). 8. CONFIDENTIAL INFORMATION; NONCOMPETITION. 8.1 Nondisclosure. The Executive shall hold in fiduciary capacity for the benefit of the Company all secret, proprietary or confidential information, knowledge or data relating to the Company and its businesses, which shall have been obtained by the Executive during the Executive's employment by the Company. During the period the Executive is employed with the Company, and after termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The restrictions set forth in this Section 8 will not apply to information which is generally known to the public or in the trade, unless such knowledge results from an unauthorized disclosure by the Executive or representatives of the Executive in violation of this Agreement. This exception will not affect the application of any other provisions of this Agreement to such information in accordance with the terms of such provision. All documents and tangible things embodying or containing confidential information are the Company's exclusive property. The Executive will protect the confidentiality of their content and will return all copies, facsimiles and specimens of them and any other form of confidential information in the Executive's possession, custody or control to the Company before leaving the employment with the Company. 8.2 Competition. During the term of the Executive's employment with the Company, and for a period of eighteen (18) months thereafter (equal to one-half of the total months of the term of this Agreement), the Executive will not, directly or indirectly, engage, participate or invest in or be employed by any business anywhere in the world which: (a) Develops or manufactures products which are competitive with or similar to products developed or manufactured by the Company; (b) Distributes, markets or otherwise sells products manufactured by others which are competitive with or similar to products distributed, marketed or sold by the Company; or (c) Provides services which are competitive with or similar to services provided by the Company, including, in each case, any products or services the Company has under development or which are the subject of active planning at any time during the term of the Executive's employment. 10 11 The foregoing restriction shall apply regardless of the capacity in which the Executive engages or engaged, participates or participated, or invests or invested in or is employed by a given business, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise. In addition, during the term of the Executive's employment with the Company, and for a period of eighteen (18) months thereafter, the Executive will not, directly or indirectly, without the prior written consent of the Company, hire or solicit for hire with any business any person who is employed by the Company at such time or was employed by the Company within the preceding eighteen (18) months. The provisions of this Section 8 shall not prevent the Executive from acquiring or holding publicly traded stock or other publicly traded securities of a business, so long as the Executive's ownership does not exceed ten percent (10%) of the outstanding securities of such company of the same class as those held by the Executive or from engaging in any activity or having an ownership interest in any business that is reviewed by the Board of Directors. The Executive understands that the restrictions set out in this Section 8 are intended to protect the Company's interest in its secret, proprietary or confidential information and established customer relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose. 8.3 Damages. The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Agreement, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, the Executive agrees that in the case of breach, or proposed breach, of any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. However, in no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. SUCCESSORS. 9.1 This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assigned by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 9.2 This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 11 12 9.3 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. MISCELLANEOUS. 10.1 This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without reference to principles of conflict of laws. The captions of this Agreement are set forth for convenience only and shall have no separate force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 10.2 All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Joe Coltman 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 If to the Company: Simula, Inc. ATTN: Corporate Secretary 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. 10.3 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 12 13 10.4 The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. 10.5 The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3.3 of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, pursuant to the authorization from its Compensation Committee and Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, as of the day and year first above written. SIMULA, INC. By Title /S/ Joe Coltman --------------- Joe Coltman 13 EX-10.44 5 EX-10.44 1 Exhibit 10.44 SIMULA, INC. CHANGE OF CONTROL EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- Name of Employee (herein "Employee"): Joe Coltman Position: Executive Vice President-Technology Date: February 1, 2000 Termination Date: [Termination of Employment]
- -------------------------------------------------------------------------------- THIS AGREEMENT is entered into between Simula, Inc. and its controlled affiliates ("Company" or "Employer"), and Employee for the following purposes and upon the following conditions: 1. PURPOSE. In order to attract and retain key employees, the Company believes it is necessary to provide for the fulfillment of the expectation of long-term employment with the Company (i) by providing a financial benefit to Employee in the case of employment termination after a Change of Control of the Company, and to (ii) protect against employees' distraction or departure, to the detriment of the Company, in the event of a proposed or pending Change of Control transaction. 2. TERM. This Agreement shall be effective as of the date stated above and shall terminate concurrently with the Employee's termination from employment with the Company. This Agreement creates no obligation on behalf of the Company other than as specified herein. In the event Employee terminates voluntarily or involuntarily from the Company under any circumstances other than a Change of Control, this Agreement shall confer no rights upon Employee. 3. CHANGE OF CONTROL. For purposes of this Agreement "Change of Control" shall be deemed to have occurred when any of the following events occur: (i) the direct or indirect acquisition by any person or related group of persons (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company) of beneficial ownership (within the meaning of Rule 13-d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing in excess 2 of 20% of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders or other transaction; or (ii) a change in the composition of the Board of Directors over a period of 36 consecutive months or less, such that a majority of the Board members (rounded up to the next whole numbers) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period, or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (iii) a merger or consolidation approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) The sale, transfer, or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company approved by the stockholders or the complete liquidation or dissolution of the Company approved by the stockholders. 4. COMPENSATION. Severance compensation ("Compensation") will be paid to Employee in the event of a Change of Control where: (i) Employee is terminated by the acquiring person or surviving entity within one year of the effective date of the Change of Control; or (ii) Employee voluntarily resigns from his position within a period of 180 days after the effective date of the Change of Control. Compensation shall be calculated and paid as follows: (iii) Employee's then current annual base salary, plus the equivalent dollar value for one year of all benefits (including insurance, defined benefit plan contributions by the Company in qualified and unqualified plans, and similar benefits) multiplied by four (4); (iv) the dollar amount necessary for payment of all taxes on such Compensation including, without limitation, all employment taxes, income taxes and alternative minimum income taxes, if any, payable with respect to a lump sum payment 2 3 in that year, grossed up by an amount necessary to pay all such taxes on the amounts paid under this subparagraph (ii), and as further provided in Section 7; and (iii) the Compensation shall be paid in a lump sum within ten (10) days of the termination of employment. 5. STOCK OPTIONS. In the event of a Change of Control, in addition to the Compensation set forth above: (i) all unexercised stock purchase options in the name of Employee on the effective date of the Change of Control shall be subject to accelerated vesting and shall thereupon be deemed fully exercisable and shall be exercised and paid for by the Employer, acquiring person, or surviving entity, on behalf of Employee and the total number of shares of Common Stock represented by the total number of options shall be fully paid, nonassessable, and validly issued to Employee, without payment of monetary consideration by Employee. Alternatively, the optionee may elect in lieu of the receipt of shares, to relinquish his options with respect to all or any of such shares and receive a payment equal to the price paid for common share in such merger, tender offer, or similar transaction multiplied by the number of common shares the optionee could have purchased with the options; (ii) in connection with Employee's receipt of the foregoing option shares or consideration, Employer will pay full tax assistance to keep Employee whole due to this immediate income, including payment of all relevant employment taxes, income taxes, capital gains taxes, and alternative minimum income taxes, grossed up by an amount necessary to pay all such taxes on the amounts paid under this subparagraph (ii), and as further provided in Section 7; and (iii) in the event of a Change of Control of the Company by the exchange of securities or issuance of stock in a merger or otherwise, Employer and the acquiring person or surviving entity shall extend to Employee the opportunity to sell or exchange the option shares issued under provisions (i) and (ii) in a manner and at a time that will allow Employee to benefit, at his election, from the exchange or issuance of stock in the merger, exchange, or other transaction. 6. CONDITION. Notwithstanding any other provision in this Agreement, or unless the operation of this paragraph shall expressly and voluntarily be waived or modified by the Employee in a written instrument signed by the Employee specifically for that purpose, the remuneration under Sections 4 and 5 required to be paid by Employer to Employee under this Agreement shall be paid by the Employer or by the acquiring person or surviving entity as a condition to the acquisition, merger, exchange, or other transaction. 7. EXCISE TAXES. The Internal Revenue Code of 1986, as amended (the "Code), will impose significant tax on Employee and the Company if the total amounts received by the Employee due to a Change of Control exceed prescribed limits. This includes a 20% excise tax on certain amounts received in excess of the prescribed limits and a loss of deduction for the 3 4 Company. If, as a result of these Code provisions, the Employee is required to pay such excise tax, then upon written notice from the Employee to the Company, the Company shall pay the Employee an amount equal to the total excise tax imposed on the Employee (including the excise taxes on any excise tax reimbursements due pursuant to this sentence and the excise taxes on any income tax reimbursements due pursuant to the next sentence). If the Company is obligated to pay taxes for the Employee pursuant to the preceding sections, the Company also shall pay the Employee an amount equal to the "total presumed federal and state taxes" that could be imposed on the Employee with respect to the excise tax reimbursements due to the Employee pursuant to the preceding sentence and the income tax reimbursements due to the Employee pursuant to this sentence. For purposes of the preceding sentence, the "total presumed federal and state taxes" that could be imposed on the Employee shall be conclusively calculated using a combined tax rate equal to the sum of the then prevailing maximum marginal federal and state income tax rates. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose. The Employee shall be responsible for paying the actual taxes. The amounts payable to the Employee pursuant to this or any other agreement or arrangement with Company shall not be limited in any way by the amount that may be paid pursuant to the Code without the imposition of an excise tax or the loss of Company deductions. 8. EFFECT ON OTHER AGREEMENTS. This Change of Control Agreement shall be supplemental to and will modify a written employment contract between Employer and Employee, if any. Except as otherwise provided by written contract, Employee shall remain "at will," and this Change of Control Agreement shall not confer upon Employee any contractual rights to employment, except as described in an employment agreement, if any, and as provided in this Change of Control Agreement. To the extent of any inconsistency between this Agreement and any other agreements with the employee, the Agreement shall be interpreted and applied in the way to confer upon Employee the greatest benefit. The agreements shall be read and applied consistent with each other, but in the event of a conflict, the terms most favorable to the Employee will be applied from the various provisions of the agreements in the aggregate. 9. RETURN OF BOOKS AND PAPERS. Upon the termination of Employee's employment with Employer for any reason, Employee shall deliver promptly to Employer all manuals and memoranda; all cost, pricing and other financial data; all customer information; all other written or printed materials which are the property of the Company (and any copies of them); and all other materials which may contain confidential information relating to the business of Employer, which Employee may then have in his possession whether prepared by Employee or not. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered mail to his residence in the case of Employee, or to its principal office in the case of Employer. 11. WAIVER OF BREACH. The waiver of Employer of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by Employee. 4 5 12. ASSIGNMENT. The rights and obligations of Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. Employee may not sell, assign, transfer, or delegate any duties, rights or interests created under this Agreement without the express written consent of the Employer. 13. ENTIRE AGREEMENT. This instrument contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have executed this Agreement effective the 1st day of February, 2000. SIMULA, INC. By ------------------------------------------- "EMPLOYER" /s/ Joe Coltman --------------------------------------------- Joe Coltman "EMPLOYEE" 5 EX-10.45 6 EX-10.45 1 Exhibit 10.15 PROMISSORY NOTE $1,000,000 Dated December 31, 1999, and Effective December 14, 1999 1. Promise to Pay. The undersigned, Simula, Inc., an Arizona corporation ("Maker"), promises to pay to the order of Stanley P. Desjardins ("Desjardins") the principal sum of One Million Dollars ($1,000,000). This Note evidences various loans made by Desjardins to Maker in the aggregate principal amount of this Note and is intended to memorialize the terms and conditions applicable to such loan. Desjardins may transfer this Note, and Desjardins or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Noteholder." 2. Interest. Interest will be charged from the effective date of this Note on the unpaid principal balance until the full amount is paid. Maker will pay interest at an annual rate of twelve percent (12%). Interest shall be calculated on the basis of a 360-day year and shall be computed on the actual number of days elapsed. 3. Payments and Maturity Date. The outstanding principal balance of this Note, together with accrued and unpaid interest thereon, shall be due and payable on December 31, 2003 ("Maturity Date"). 4. Prepayments. Maker may not voluntarily prepay this Note, whether in whole or in part, at any time. However, this Note shall be subject to a mandatory prepayment of the outstanding principal balance of this Note, together with accrued interest thereon, within two days following the date upon which all of the following conditions have been satisfied: (1) the Term Loan Promissory Note dated December 31, 1999, made by Maker and certain of its subsidiaries in favor of The CIT Group/Business Credit, Inc. ("CITBC") in the principal amount of $5.0 million, has been repaid in full; (2) the Secured Senior Note due 2000 dated December 31, 1999, made by Maker and certain of its subsidiaries in favor of Levine 2 Leichtman Capital Partners II, L.P. in the principal amount of $5.0 million has been repaid in full; and (3) after giving effect to the mandatory prepayment to be made hereunder, the "Availability" (as defined in the Financing Agreement dated as of December 31, 1999, between Maker and CITBC) would be at least $2.0 million. 5. Note Charges. If a law which applies to this Note and which sets maximum loan charges is finally interpreted so that the interest or other charges collected or to be collected in connection with this Note exceed the permitted limits, then: (i) any such Note charges shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (ii) any sums already collected from Maker which exceeded permitted limits will be refunded to Maker. The Noteholder may choose to make this refund by reducing the principal it owes under this Note or by making a direct payment to Maker. If a refund reduces principal the reduction will be treated as a partial prepayment. 6. No Waiver, Expenses. 6.1 Even if at a time when Maker is in default Noteholder does not require Maker to pay immediately in full as directed below, Noteholder will still have the right to do so if Maker is in default at a later time. 6.2 If Noteholder has required immediate payment in full as described below, Noteholder will have the right to be reimbursed for all of its costs and expenses to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees. 6.3 Presentment, demand, protest, notices of protest, dishonor and non-payment of this Note and all notices of every kind except notices of payment changes are hereby waived. 6.4 No single or partial exercise of any power under this Note shall preclude other or further exercise thereof. The Noteholder shall at all times have the right to proceed against any portion of any security held for this Note in such order and in such manner as the Noteholder may deem fit, without waiving any rights with respect to any other security. No delay or omission on the part of the Noteholder in exercising any right under this Note shall operate as a waiver of such right or of any other right under this Note. The release of any party liable on this Note shall not operate to release any other party liable on the Note. 6.5 Any payment hereunder otherwise due on a day that is not a business day in Phoenix, Arizona shall be due on the immediately preceding business day. 7. Events of Default. 2 3 7.1 At the option of the Noteholder, the Note shall become immediately due and payable unless otherwise stated, without notice or demand, upon the occurrence of any of the following events of default: (a) Failure to pay any payment of principal or interest when due hereunder within five (5) days of the due date; or (b) Making an assignment for the benefit of creditors by Maker, or the voluntary appointment (at the request of any such party or with the consent of any such party) of a receiver, custodian, liquidator or trustee in bankruptcy of any such party's property or the filing by any such party of a petition in bankruptcy or other similar proceeding under law for relief of debtors; or (c) Filing by Maker of a petition in bankruptcy or other similar proceeding under the law for relief of debtors, or the involuntary appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the property of any such party, and such petition or appointment is not vacated or discharged within sixty (60) days after the filing or making thereof. 7.2 If this Note is not paid when due, whether at maturity or by acceleration, Maker promises to pay all costs of collection, including, without limitation, reasonable attorneys' fees, and all expenses in connection with the protection or realization of any collateral securing this Note or the enforcement of any guaranty hereof incurred by the Noteholder on account of such collection whether or not suit is filed, such costs and expenses shall include, without limitation, all attorneys' fees and expenses incurred by the Noteholder in connection with the collection of this Note. 8. Placement Fee. A placement fee equal to Twenty Thousand Dollars ($20,000) is payable as part consideration for the loan represented by this Note, and the fee is payable in full upon the payment of all outstanding principal balance of, and all accrued interest on, this Note. 3 4 9. Governing Laws; Jurisdiction. This Note shall be constructed in accordance with the governed by laws of the State of Arizona. Any dispute arising under this Note shall be brought in a court of competent jurisdiction located within the State of Arizona. SIMULA, INC., an Arizona corporation By: /s/ James C. Dodd ---------------------------- James C. Dodd Chief Financial Officer 4 EX-21 7 EX-21 1 EXHIBIT 21 SIMULA, INC. SUBSIDIARY LIST 1. AI Capital Corp. (formerly Airline Interiors, Inc.) 2. Artcraft Industries Corp. 3. CCEC Capital Corp. (formerly Coach and Car Equipment Corporation) 4. International Center for Safety Education, Inc. 5. Simula Automotive Safety Devices, Inc. 6. Simula Automotive Safety Devices, Limited 7. Simula Composites Corporation (formerly Viatech, Inc.) 8. Simula Polymer Systems, Inc. 9. Simula Safety Systems, Inc. 10. Simula Technologies, Inc. 11. Simula Transportation Equipment Corporation
EX-23 8 EX-23 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-13499 and 333-79413 of Simula, Inc. on Form S-3 and in Registration Statement Nos. 33-93928, 333-14021, 333-22989, and 333-57541 of Simula, Inc. on Form S-8 of our report dated March 29, 2000, appearing in this Annual Report on Form 10-K of Simula, Inc. for the year ended December 31, 1999. DELOITTE & TOUCHE LLP Phoenix, Arizona April 10, 2000 EX-24 9 EX-24 1 EXHIBIT 24 POWER OF ATTORNEY The undersigned officer of SIMULA, INC. (the "Company") does hereby constitute and appoint Bradley P. Forst and James C. Dodd, or either of them, with full power of substitution, my true and lawful attorney and agent, to do any and all acts and things in my name in the capacity indicated below, and to execute any and all instruments for me and in my name in the capacities indicated below that either of them, may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with periodic reports on Form 4, Form 5, or Form 144, covering such shares of preferred stock, common stock, options, warrants, or other securities of the Company that I may acquire or dispose of, including specifically, but not limited to, the power and authority to sign for me in the capacity indicated below any and all amendments thereto; and I do hereby ratify and confirm all that Bradley P. Forst and James C. Dodd or either of them, shall do or cause to be done by virtue hereof. Dated this 28th day of March, 2000. /s/ S. Thomas Emerson ------------------------- S. THOMAS EMERSON Director EX-27 10 EX-27
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 5,223 0 24,757 0 7,541 50,286 24,810 10,863 112,073 53,820 0 0 0 112 7,996 112,073 130,375 137,393 102,984 129,714 18,327 0 7,346 (23,894) (8,363) (15,531) 2,609 151 0 (18,292) (1.82) 0.00
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